In conjunction with the passage of A.B. 62, the Legislature attempted to close a loophole in its real property transfer tax by passing A.B. 448. For instance, in Clark County (Nevada’s largest), a transfer tax of 0.25% is imposed on the value of real property. However, Nevada also exempts certain transactions, such as transfers between affiliated entities. To avoid the transfer tax, transactions can be structured so that sellers transfer real property to a subsidiary company, paying no transfer tax, and the buyers acquire the equity interest of the subsidiary. Thus, there is no direct real estate purchase. In fact, several recent casino sales caught the public eye because the sale deed showed the transaction to be exempt from transfer tax. According to the Las Vegas Review-Journal, $27.5 billion of these types of affiliated-entity real estate transactions escaped taxation. If that report is accurate, the exemption represents nearly $69 million in lost transfer-tax revenue.

A.B. 448 attempts to close the affiliated-entity loophole by removing the exemption “if the business entity to which the real property is transferred was formed for the purpose of avoiding those taxes.” How county recorders are to determine the intent of an entity forming a subsidiary business remains unclear, but the Legislature instructed the Nevada Department of Taxation to provide guidance. If the county recorders can find an effective means of closing the loophole, it will benefit low-income housing in Nevada because a portion of the funds raised by the transfer tax is directed to Nevada’s Affordable Housing Trust Fund.

These recent changes to Nevada’s tax policy should help relieve the state’s housing shortage for its low-income residents.

Douglas S. John represents individuals and companies in state and local tax matters. For more information on these tax changes and other state and local tax issues, please contact Mr. John via email.