            IN THE COMMONWEALTH COURT OF PENNSYLVANIA

The Appeal of Wissahickon Apartments, :
LLC and C. Craig Smith, Jr.,          :
                         Appellants   :
                                      :
                   v.                 :            No. 1067 C.D. 2019
                                      :            SUBMITTED: June 12, 2020
The City of Philadelphia Tax Review   :
Board                                 :


BEFORE:        HONORABLE MICHAEL H. WOJCIK, Judge
               HONORABLE ELLEN CEISLER, Judge
               HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge


OPINION NOT REPORTED

MEMORANDUM OPINION BY
SENIOR JUDGE LEADBETTER                                            FILED: July 10, 2020


               Wissahickon Apartments, LLC (Wissahickon), and C. Craig Smith, Jr.
(collectively, Appellants), appeal from the order of the Court of Common Pleas of
Philadelphia County, affirming the adjudication of the City of Philadelphia, Tax
Review Board (TRB), which rejected Appellants’ petition for refund of realty
transfer tax paid on the assignment of a ground lease for all existing structures and
improvements on a Property with a remaining term under thirty years. Order,
Wissahickon Apts., LLC v. City of Phila., Tax Review Bd. (C.C.P. Phila., Oct. Term,
2018 No. 02969, filed June 26, 2019) (Patrick, J.) (Reproduced Record “R.R.”1 at
2a.) In its opinion under Pennsylvania Rule of Appellate Procedure 1925(a), the trial
court held that the assignment of the lease, along with two other assignments, the
simultaneous transfer of the fee interest from Dabney Corporation (of which Smith

   1
       Pages 1a-7a of the Reproduced Record are appended to Appellants’ Brief.
is president) and the immediate subsequent termination of the ground lease by
Wissahickon, together constituted a de facto transfer of ownership subject in its
entirety to the realty transfer tax. (R.R. at 3a-7a.) We affirm.2
              The facts are as follows. On February 28, 2017, Dabney Corporation
sold the fee interest in the Property to Wissahickon for $250,000, for which a realty
transfer tax of $7,750 was paid. (Supplemental Reproduced Record “S.R.R.” at
60b.) The realty transfer tax certificate for the land sale declared: “the attached
[land] deed is for the transfer of the land only. The improvements are part of the
leasehold interest and will be simultaneously transferred by a recorded assignment
of ground lease. Transfer tax is being paid on the value of the assignment of the
ground lease. . . .” (Id.)
              Simultaneously, Smith sold the leasehold interest in the Property,
including the improvement, a multi-story apartment building, to Wissahickon for
$2,970,000. (R.R. at 184a-87a). Under protest, Appellants paid a realty transfer
tax on the leasehold transfer of $92,070. (R.R. at 192a.)
              Immediately thereafter, Wissahickon, now owner, lessor, and lessee of
the Property and improvement, terminated the ground lease with itself. (S.R.R. at
61b.) Thus, by operation of law, Wissahickon became the undisputed owner of the
land and the improvement located on the Property. In other words, Wissahickon’s
purchase of the leasehold and fee interest, termination of the ground lease with itself,
and merging of interests made it the absolute fee owner of the Property, including
the improvement.



    2
      It should be noted that a parallel appeal from the state-imposed realty transfer tax on the
same transaction is currently pending before the Court. See Wissahickon Apts., LLC v. Com. (Pa.
Cmwlth., No. 45 F.R. 2020) (docket entries).


                                               2
               Appellants filed an appeal with the TRB seeking a refund of the
$92,070 of realty transfer tax paid on the assignment of the ground lease for the
Property. (R.R. at 22a.) Before the TRB, Appellants argued that the assignment of
the ground lease was not taxable because there were fewer than thirty years
remaining on the leasehold interest (R.R. at 52a), entitling them to a tax exemption
under Section 19-1402(12)(b) of The Philadelphia Code.3
               The TRB denied the appeal in October 2018. (R.R. at 1a.) In its
decision, the TRB concluded that the sales agreement for the leasehold and fee
interests “conveyed both interests to Wissahickon, with consideration, and
[Wissahickon] terminated the lease at closing. Therefore, Wissahickon now owns
the land and the building outright, after paying consideration of [$]3.2 million; the

    3
      Section 19-1402(12)(b) of The Philadelphia Code provides that “title to real estate” may be
defined as follows:

               Any interest in real estate enduring for a fixed period of years . . .
               including . . . a leasehold interest or possessory interest under a lease
               . . . for a term of thirty (30) years or more or a leasehold interest or
               possessory interest in real estate in which the lessee has equity.

Philadelphia Code § 19-1402(b). This effectively represents an exemption from the realty transfer
tax for leaseholds under thirty years in duration. The general rule, found at Section 19-1403(1) of
The Philadelphia Code, provides as follows:

               Every person who transfers ownership of real estate situate within
               the City or who makes, executes, delivers, accepts or presents for
               recording any document or in whose behalf any document is made,
               executed, delivered, accepted or presented for recording, or who
               accepts ownership of real estate situate within the City, shall be
               subject to pay for and in respect to the transaction or any part
               thereof, or for or in respect of the vellum parchment or paper upon
               which such document is written or printed, a tax based on the value
               of the real estate represented by such document . . . .

Philadelphia Code § 19-1403(1).


                                                  3
taxable amount under the realty transfer tax.” (S.R.R. at 66b.) The TRB further
explained that the taxation of the transfers of the leasehold and fee interests
“prevent[s] circumvention of the payment of realty transfer tax on the value of
interests in real estate transferred by a sales agreement.” (Id.)
               Appellants then appealed to the trial court, which did not take new
evidence. Following oral argument in June 2019, the trial court denied the appeal
and affirmed the TRB’s decision by order dated June 26, 2019. Appellants appealed
to this Court and filed a statement under Pennsylvania Rule of Appellate Procedure
1925(b). In its opinion under Pennsylvania Rule of Appellate Procedure 1925(a),
the trial court found that the conveyance of the fee interest ownership in conjunction
with the assignment of the ground lease, along with the termination of the ground
lease, effectively transferred all ownership interest, including the improvement, to
Wissahickon. (R.R. at 6a.) The trial court rejected Appellants’ claim that by
characterizing the sale of the improvement as an “assignment of a ground lease,” it
could avoid paying the transfer tax on most of the approximately $3.2 million
purchase price. (Id.)
               On appeal4 to this Court, Appellants raise two issues:

               A. Did the Trial Court err in holding transfer tax was due
               and payable upon the assignment of a tenant’s leasehold
               interest in property from that tenant to an unrelated third
               party when the lease had a remaining term of less than
               thirty (30) years? [and]


               B. Did the Trial Court err in finding the assignment
               described above resulted in a transfer of “actual equitable

    4
      Where a full record is made before the agency, the trial court exercises appellate review. In
addition, where, as here, the only issue is whether the trial court, in affirming the TRB, misapplied
the law, our review is plenary.



                                                 4
               ownership” in real estate and thus was a taxable transfer
               of property?
(Appellants’ Br. at 3.)
               We note first that these are not separate issues, because resolution of
the first is inextricably intertwined with and hinges on resolution of the second. In
other words, if the transaction as a whole amounts to a de facto transfer of the entire
Property, the transfer of the leasehold interest—however long—cannot be viewed in
a vacuum. Indeed, if they were separate and discreet issues, the second would be
waived because only the “first issue” was asserted in Appellants’ statement of errors
complained of on appeal pursuant to Pennsylvania Rule of Appellate Procedure
1925(b).5 At all events, we believe that the trial court ably considered and disposed


    5
       With regard to Appellants’ “second issue,” we further note that in enacting the realty transfer
tax, the City Council of Philadelphia made a specific legislative finding that “[e]ntities holding
real estate can effectively transfer equitable ownership in real estate by means other than by deed.”
Philadelphia Code § 19-1401(3). Further, “[e]ntities can effectively transfer equitable ownership
in real estate by selling corporate stock, selling partnership interests, leasing real estate for a
period of time, merging with another entity, or liquidating the entity.” Philadelphia Code § 19-
1401(4) (emphasis added). Finally, City Council found that “[i]t is the intent of City Council to
tax the transfer of the ownership of real estate situate in Philadelphia whether such transfer occurs
in fact or equitably being the transfer of stock or shares of an acquired real estate company. . . .”
Philadelphia Code § 19-1401(5). Of further import, notably, Section 19-1403(1) declares the
transferor or the transferee of “ownership of real estate” subject to pay for tax on the transaction.
Philadelphia Code § 19-1403(1). Although two entities (Smith and Dabney Corporation)
transferred elements of ownership, the transferee in this transaction received the entirety of
ownership of real estate, fee and leasehold, via the conveyances. Reading The Philadelphia Code
otherwise cannot be squared with City Council’s stated intent and express language.

     The TRB’s decision that Appellants utilized the “assignment of the ground lease” to disguise
the transfer of the improvement to Wissahickon is supported by ample record evidence. First,
Appellants’ Sale Agreement illustrates a single sale of the Property was really at issue. (Contract
for Sale, S.R.R. at 1b.) The Sale Agreement explicitly describes that a single buyer, Wissahickon,
was purchasing both the land and the improvement for one purchase price: $3,220,000. (Id. ¶¶
2(a), 4 and 8, S.R.R. at 2b-4b.) Paragraph 2 of the Sale Agreement defined the Property to be sold
as consisting of both the land and the leasehold interest in the improvement. (Id. ¶ 2(a)(I)(A)(1)-
(2), S.R.R. at 1b.) Notably, the Sale Agreement further states, under the paragraph titled “Transfer
of Ownership”:

               [Dabney Corporation and Smith] will transfer ownership of the
               Property to Buyer. Each of Dabney . . . will give Buyer a properly
               executed deed and deliver to Buyer’s title insurance company an



                                                  5
of Appellants’ claims, see Opinion, Wissahickon Apartments, LLC v. City of
Philadelphia, Tax Review Board (C.C.P. Phila., Oct. Term, 2018 No. 02969, filed
Oct. 7, 2019) (Patrick, J.) (R.R. at 3a-7a), and we affirm based on that opinion.6



                                               _____________________________________
                                               BONNIE BRIGANCE LEADBETTER,
                                               Senior Judge




                adequate affidavit of title. Dabney and Smith will each execute and
                deliver to Buyer a recordable form of its respective lessor’s and
                lessee’s interest in the Ground lease.

(Id. ¶ 8, S.R.R. at 4b) (emphasis added).

    6
      As noted at note two, supra, a parallel appeal is ongoing before the Court with respect to the
realty transfer tax imposed by the Commonwealth. Appellants quote the Commonwealth of
Pennsylvania, Department of Revenue’s Board of Appeals’ decision in that matter, which the trial
court did not discuss in its decision. The TRB disputes the propriety of considering the decision
because it was first raised before the trial court despite the Board of Appeals’ decision being issued
on March 30, 2018, six months prior to the issuance of the TRB’s order on October 1, 2018.

     We find that what we know of the Board of Appeals’ decision as it appears in this case, even
considered as persuasive authority, does little to help Appellants’ case. The Board of Appeals,
while finding that the transfer of the leasehold of less than thirty years was not subject to the realty
transfer tax (see Appellants’ Br. at 16; a copy of the actual decision of the Board of Appeals is not
in the record), nonetheless assessed Wissahickon and Dabney Corporation with transfer tax based
on the aggregate consideration paid for both the deed and the lease assignment. The Pennsylvania
Board of Finance and Revenue has since affirmed.



                                                   6
       IN THE COMMONWEALTH COURT OF PENNSYLVANIA

The Appeal of Wissahickon Apartments, :
LLC and C. Craig Smith, Jr.,          :
                         Appellants   :
                                      :
                   v.                 :    No. 1067 C.D. 2019
                                      :
The City of Philadelphia Tax Review   :
Board                                 :



                                  ORDER


            AND NOW, this 10th day of July, 2020, based on the foregoing opinion
and the opinion of the Court of Common Pleas of Philadelphia County, Wissahickon
Apartments, LLC v. City of Philadelphia, Tax Review Board (C.C.P. Phila., Oct.
Term, 2018 No. 02969, filed Oct. 7, 2019) (Patrick, J.), appended hereto, we
AFFIRM the Order of the Court of Common Pleas.



                                    _____________________________________
                                    BONNIE BRIGANCE LEADBETTER,
                                    Senior Judge
