Loopchasm

The word “loophole” conjures up an image of high-priced lawyers twisting, turning and massaging the law, producing an arcane break for powerful clients and outrage among everyone else.

Such as the real-estate transfer tax, the outrage of the day in Augusta. When average citizens deal for a modest bungalow, the tax is paid, usually a couple of hundred dollars, generally split between buyer and seller. When enormous corporations deal for 2.6 million acres of Maine forest land, the transaction is wrapped up as a stock-swap between a parent business and a subsidiary. The tax — potentially $2.4 million on sales of $550 million — does not have to be paid and lawmakers fume at the skullduggery.

Call it wrong, call it unfair, call it business as usual. Just don’t call it a loophole. It’s just too big, too easy to find and too widely used to be considered underhanded.

Maine’s real-estate transfer tax law has been on the books since 1975, along with 11 exemptions. No tax is due on deeds to government property, mortgage, tax and partition deeds, deeds between family members, deeds pursuant to mergers and, yes, deeds between parent corporations and subsidiaries. It doesn’t take a $400-an-hour sharpie with a law degree and a three-piece suit to find these exemptions. Anyone with access to the books of Maine statutes and the ability to use an index (such as, theoretically, a legislator) can be reading the simple declarative sentences that pertain inside of three minutes — Title 36, Chapter 711, Section 4641.

And it’s not as if buyers Plum Creek, J.D. Irving and MacDonald Investments and sellers Sappi and Bowater are the first to figure this out. Winfield Smyth of the state Bureau of Revenue Services says the parent/subsidiary exemption has been used “dozens and dozens of times, easily, over many years. Bath Iron Works used it twice, Fairchild Semiconductor, General Electric, even churches. It’s standard accounting practice; all corporate transactions are done by stock transfer. The surprise would be if they didn’t use it.”

Despite the dog-bites-man nature of this story, lawmakers are scurrying to scrap this exemption, at least before the Bowater sales to Irving and MacDonald close next month. Some of those who believe the only safe place for the Maine forest to be is in public ownership are doing their best to whip the public into an anti-business frenzy.

Last year, about $13 million was collected in transfer tax. The county where the deed is recorded kept 10 percent, the rest was split between the state’s General Fund and a Maine State Housing Authority low-income program. The corporate exemption became a cause when legislators began eyeing the expected forest sales taxes as a source of retraining funds for paperworkers facing layoffs and discovered there would be no windfall.

It may be that, after 24 years, the transfer tax law needs adjustments. If average citizens can come up with a couple of hundred dollars, corporations could at least cover the cost of getting a deed recorded. Maybe a mechanism could be devised whereby corporations would make reasonable, but not absurd, contributions to the General Fund and to low-income housing. Such delicate maneuvering can’t take place amid the atmosphere of panic. Given the age of this exemption and its frequency of use, panic is uncalled for.

There is an interesting sidebar to this story, one that should have public-lands advocates chuckling smugly and private-property forces a bit red-faced. There was a fourth player in the flurry of forest sales last fall — The Nature Conservancy bought 185,000 acres on the St. John River. And, unlike their corporate neighbors, they paid their tax.