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City Council bill seeks to crack down on real estate transfer-tax dodgers

City Councilman Al Taubenberger introduced legislation Thursday to close the loopholes used by parties in some of Philadelphia's biggest commercial real estate transactions to avoid or lessen the transfer tax on those deals.

Taubenberger said his bill aimed to level the playing field between everyday buyers and sellers of real estate — who pay the transfer tax in full as a matter of course — and parties in big transactions that have the resources to avoid doing so.

"What I'd like to see happen is that the guy or lady in their rowhouse is really paying the same percentage that the really powerful corporations are," he said. "What we want here is fairness."

The proposal comes a month after an Inquirer analysis found that in some of the city's biggest commercial real estate transactions, the transfer tax  is regularly paid on a property value less than the purchase price, if it is paid at all.

Of the nine commercial real estate deals valued at more than $100 million since the start of 2015, the transfer tax was paid on the full purchase price only twice. The seven times in which it was not paid cost Philadelphia and Pennsylvania as much as $28.4 million.

Currently, Philadelphia charges 3 percent on top of the state levy, resulting in what is said to be the highest transfer tax of any major U.S. city. It's at least the highest among the 10 most populous U.S. cities, an Inquirer comparison showed.

In June, City Council voted to raise the transfer tax by an additional 0.1 percent effective Jan. 1, to help fund home repairs for low- and middle-income residents, among other housing-preservation initiatives.

Under Taubenberger's bill, sellers would have to retain a stake of more than 25 percent in a property, and hold it for more than six years.

If passed, the legislation would make that strategy less useful in many commercial deals, though it is already seldom deployed because it keeps sellers locked into investments longer than they might like, said Kevin Greenberg, an attorney with the Philadelphia firm Flaster/Greenberg who specializes in corporate and real estate law.

But the provision calling for payment against actual purchase prices will be harder for officials to enforce, Greenberg said.

"Buyers and sellers who are dedicated enough to an aggressive tax-driven structuring will likely find another strategy to try to navigate the new language, whatever that ends up being," he said.

City spokesman Mike Dunn said the Kenney administration worked closely with Council members on the bill and supports "closing these loopholes."

Domb called the legislation an "excellent bill aimed at making government more efficient," but he said a better solution would be to reassess the city's commercial properties so their value on city tax rolls is closer to their actual worth.