Thursday, December 8, 2022

Nevada: Several major real estate deals including Strip casinos reportedly resulted in lost transfer taxes due to 2007 law change | Yogonet International

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Some of Las Vegas’ biggest real estate deals have resulted in no transfer taxes, an investigation by Las Vegas Review-Journal found. At least $27.5 billion worth of transactions, mostly on or near the renowned Strip, have closed since 2007 without publicly reporting tax payments routinely levied on home purchases.

The deals include the $4.2 billion cash sale of the Bellagio, which was completed in fall 2019 and was supposed to generate about $21 million in real estate sales taxes. However, this deal, along with many other millionaire schemes, have been structured in ways that allowed buyers and sellers to avoid paying real estate transfer taxes, the cited source claims.

The transactions frequently cite an exemption allowed under state law when property owners transfer real estate to a subsidiary to spare companies from paying the tax, which is regularly applied on sales of homes, apartment buildings and other sites. Buyers often acquire a limited liability company or other entity that holds ownership of the real estate instead of purchasing the property directly.

Real estate transfer taxes support schools and low-income housing in Nevada. But roughly two dozen deals employing this exemption, totaling at least $27.5 billion worth of transactions in the Las Vegas area -including sales of hotel-casinos and other properties-, have closed since 2007 without any publicly reported real estate transfer taxes, Review-Journal found.

While risks are associated with this approach, given buyers take on an entity’s assets and liabilities, it also leads to big savings for the parties. And industry players defend the tactic: casino giant MGM Resorts told the newspaper that this deal structure “is typical among real estate transactions involving businesses of all sizes, across a wide variety of industries.”

Review-Journal found major deals as recent as Las Vegas Sands Corp.’s sale of The Venetian, Palazzo and The Venetian Expo were carried out without transfer taxes. The properties were sold for $6.25 billion in a transaction closed in February, with landlord Vici Properties acquiring the real estate from Sands for $4 billion in cash.

Vici has also completed a $17.2 billion acquisition of MGM Resorts’ real estate spinoff, granting the firm more assets on the strip and allowing MGM to lease those resorts from the new landlord. As of early May, Clark County property records did not show public reports of transfer taxes, the source learned.

Transfer taxes amount to a tax rate of 0.51% in Clark County, a small fraction of a property’s purchase price that can be negotiated between the buyer and seller. The way some major resort deals have been structured, resulting in $0 owed, has been described as a “loophole” by some stakeholders in the industry.


The Bellagio, a property among deals listed in the report

However, UNLV law professor Francing Lipman told Review-Journal that the deals were most likely not structured solely to avoid the transfer tax, although she said it might be a factor considered. Meanwhile, State Sen. Dina Neal, chair of the Legislature’s interim revenue committee, said in the report she wasn’t aware of the lack of transfer taxes in the operations.

The senator further told the source she is willing to discuss whether this is a “loophole” lawmakers are not aware of and to look at the “real-life implications” of losing these taxes. But whether they represent a loophole or not, the transactions are not technically wrongdoing, given Clark County officials receive supporting documentation for the exemptions before approving them.

Other deals tracked in the report include MGM’s nearly $3.9 billion sale of Aria and Vdara to Blackstone; Blackstone’s acquisition of The Cosmopolitan for more than $1.7 billion; MGM’s $825 million sale of Circus Circus and adjacent land; and more. Publicly traded companies describe in securities filings how the deals are structured.


Aria and Vdara

While it is unclear how much tax revenue could have been generated from the deals, as many also involved the purchase of business operations in addition to real estate, the latter typically comprises around 70% of the sale price, totaling millions of dollars.

Nevada’s transfer tax law was approved in 1967, and did not apply under scenarios including a property being transferred to a government agency, or changing hands as part of a bankruptcy. By 1985, owners could seek an exemption when transferring real estate with an affiliated corporation, and in 2007 language was changed by swapping “corporation” to “business entity.”

The move was initially set to prevent real estate investors from being taxed more than once in certain land deals. The change was introduced before real estate investment trusts became prevalent in the US casino industry.



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