Ruling 98-3
Controlling Interest Transfer Tax
This Ruling is cited in Ruling 99-6
FACTS:
P, a corporation, owns Connecticut real property, the present true and actual value of which is not less than $2,000. All of P’s shares are owned by R, a corporation. P will merge into Q, a corporation, with Q being the surviving corporation in the merger and P ceasing to exist. All of Q’s shares are also owned by R.
ISSUE:
Will the merger of a first-tier wholly-owned subsidiary of a parent corporation into another first-tier wholly-owned subsidiary of the same parent corporation be a sale or transfer subject to the controlling interest transfer tax?
DISCUSSION:
Conn. Gen. Stat. §12-638b imposes a tax "on the sale or transfer of a controlling interest in any entity which possesses an interest in real property in this state when the present true and actual value of the interest in real property equals or exceeds two thousand dollars ...." "Controlling interest" is defined in Conn. Gen. Stat. §12-638a(2)(A) as meaning "in the case of a corporation, more than fifty per cent of the total combined voting power of all classes of stock of such corporation ..."
The elements of a taxable transfer, all six of which must be present, are set out in LSN-89, Revised Special Notice Concerning Controlling Interest Transfer Taxes (Rev. 7/90):
A. A transferor (or a group of transferors acting in concert) must transfer a controlling interest in an entity...
B. The controlling interest must be transferred to a transferee (or a group of transferees acting in concert).
C. The transfer must be for consideration.
D. The entity must own Connecticut real property...
E. The present true and actual value of the Connecticut real property must not be less than $2,000...
F. The transfer of a controlling interest must occur on or after July 1, 1989..."
Where R owns all of P’s shares and all of Q’s shares, the merger of P into Q will not transfer a controlling interest in P from one person (or a group acting in concert) to another person (or a group acting in concert). Such a merger does not constitute a taxable sale or transfer of a controlling interest, because the first two of six elements of a taxable sale or transfer that are set out in LSN-89 are not present, and, in order for a taxable sale or transfer to occur, all six of the elements must be present.
RULING:
The merger of a first-tier wholly-owned subsidiary of a parent corporation into another first-tier wholly-owned subsidiary of the same parent corporation is not a sale or transfer subject to the controlling interest transfer tax.
LEGAL DIVISION
September 28, 1998