TAX NEWS - JUNE 2010

West Virginia Tax: Tax change made sale of City Center West possible

by George Hohmann, 02 June 2010 -- It turns out the federal stimulus package is doing more than supplementing the state budget and repairing some Interstate highways.

The owner of the City Center West office tower credits an obscure tax provision in the stimulus package for making the sale of the building possible.

General Corp. agreed last week to sell the tower to the state for $21.5 million. The Lottery Commission will be the primary occupant.

Here's how the tax law became crucial to the deal:

Ed Maier, chairman and president of General Corp., said the company, owned by family members, switched from being a "C" corporation to an "S" corporation around 2002.

"C" corporation shareholders effectively pay taxes twice. First, the corporation pays taxes on its profits. When it pays dividends, the shareholders pay tax on them, too. It is, in effect, double taxation.

"S" corporations, on the other hand, are like partnerships - they pass income through to shareholders, who are responsible for paying taxes on income.

Tax law says that if a "C" corporation converts to an "S" corporation and sells assets within 10 years of the conversion, the "S" corporation will be taxed at the corporate level and shareholders will be taxed on what remains - the dreaded double taxation.

The federal stimulus package passed by Congress last year contains a provision that reduces the 10-year holding period to seven years for corporations that converted from "C" to "S" and sell property in 2009 and 2010.

"We were an 'S' corporation for exactly seven years when the stimulus package came out and said if you've been an 'S' corporation for seven years, you can sell assets and not be double-taxed," Maier said. "You would have thought we had been the ones to write that legislation because it fit our situation perfectly. We are able to sell any assets we want in 2009 and 2010 without fear of being double taxed.

"This deal would never have taken place if it hadn't been for the break in the stimulus package," Maier said. "It saved us several million dollars and saved the state from paying more because if it hadn't been for that provision we would not have sold the building now or we would have had to have asked for more money. We expect these savings to be spent and reinvested back into this community."

Maier credits Vic Grigoraci of Grigoraci, Paterno & Associates, his accountant and tax consultant, with alerting him to the change in the law.

"Vic is the best around," Maier said. "He's the one who brought it to my attention within a month after it came out. He takes care of his clients very well."