Appealed From No. 14887. State Agency, Board of Finance and Revenue.
Before: Honorable James Gardner Colins, President Judge, Honorable Dan Pellegrini, Judge (p.), Honorable Samuel L. Rodgers, Senior Judge. Opinion BY President Judge Colins. Judge McGinley did not participate in the decision in this case.
The opinion of the court was delivered by: Colins
OPINION BY PRESIDENT JUDGE COLINS
Dennis J. Kelleher has filed a petition for review of the adjudication of the Board of Finance and Revenue (Board) affirming the decision of the Department of Revenue Board of Appeals sustaining a realty transfer tax assessment against Kelleher in the amount of $8,528.50, plus interest. The tax was assessed pursuant to Section 1102-C of Article XI-C of the Tax Reform Code of 1971 (Realty Transfer Act or Act) *fn1 as a result of the recording of a deed in 1991. The issue presented questions whether the industrial use exemption set forth in Section 1102-C.3(15) of the Realty Transfer Act, 72 P.S. § 8102-C.3(15) is applicable to a grantee that subleases the premises to a corporation in which the grantee is a stockholder. We affirm the order of the Board for the reasons set forth below.
The parties agree *fn2 that petitioner had a general partnership interest in Preble Island Land Company (Preble). Pursuant to a lease purchase agreement the Allegheny County Industrial Development Authority (ACIDA) leased to Preble property located at 2295 Preble Avenue, Pittsburgh, Pennsylvania (hereinafter "the property"). In turn, Preble subleased the property to Cassady-Pierce Company, Inc. (Cassady-Pierce), a corporation in which Kelleher is a 90% stockholder. In 1991, Kelleher liquidated Preble. Subsequently, ACIDA sold the property to Kelleher, whereupon, Kelleher and Cassady-Pierce entered a lease wherein Kelleher agreed to lease the property to Cassady-Pierce for manufacturing, warehousing, and fabricating use.
The deed lists ACIDA as grantor and Kelleher as grantee. Kelleher paid no realty transfer tax when the deed was recorded claiming exemption under Section 1102-C.3(15) of the Realty Transfer Act, 72 P.S. § 8102-C.3(15).
On May 1, 1992, the Department of Revenue issued a notice of determination finding inter alia : 1) that the grantee to the transaction was Kelleher; and 2) that Kelleher was not directly using the property for a qualified purpose as required by the Act. Maintaining that the transfer was taxable because Kelleher was not "directly" using the property for a qualified purpose within the meaning of Section 1102-C.3(15) of the Act, 72 P.S. § 8102-C.3(15), the Department of Revenue imposed on Kelleher, a realty transfer tax in the amount of $8,528.50 plus interest. Kelleher's petition for redetermination filed with the Board was denied, based on the Board's determination that Kelleher's use of the property was not "direct." On March 22, 1993, Kelleher paid the transfer tax plus interest for a total amount of $9,449.13. On April 23, 1993, Kelleher filed a petition for refund with the Board that was denied by order dated March 1, 1994.
On appeal to this Court, Kelleher contends that the transfer of property from ACIDA to Kelleher met the requirements set forth in the industrial use exemption to the Realty Transfer Act. Kelleher posits that the property is used for an exempt purpose by a company in which he has an ownership interest; therefore, the property was occupied in a manner that satisfies the requirement that the property be used for the statutorily mandated purpose "directly" by the grantee. Section 8102-C.3(15) of the Act provides:
The tax imposed by section 1102-C shall not be imposed upon:
(13) A transfer from a nonprofit industrial development agency or authority to a grantee purchasing directly from it, but only if:
(i) the grantee shall directly use such real estate for the primary purpose of manufacturing, fabricating, compounding, processing, publishing, research and development, transportation, energy conversion, energy production, pollution control, warehousing or agriculture; ....
The Commonwealth maintains that Kelleher's argument contravenes the separate entity doctrine set forth at Section 1102-C.4 of the Act, 72 P.S. § 8102-C.4 in that the grantee (Kelleher) and lessee (Cassady-Pierce) are separate and distinct entities. Thus, asserts the Commonwealth, Kelleher's leasing of the premises to a separate entity precludes the application of the exemption provisions of the Real Estate Transfer Act, irrespective of Kelleher's ...