If your principal residence is in Florida, or some other state, and you own real estate in Massachusetts, can you escape estate taxation on the Massachusetts real estate? The answer is that maybe you can.
The Massachusetts taxing statute imposes a tax on "the transfer of a nonresident decedent's real and tangible personal property having an actual situs in Massachusetts."
Real estate is land and buildings attached to land. Personal property is anything else. There are two kinds of personal property.
Tangible personal property is something that has intrinsic value - an automobile, a diamond ring, a boat, or a gold coin. Intangible personal property is something that represents value, such as a stock certificate, or something which cannot be touched, such as a patent right, a copyright, or an account receivable.
If you live in Florida and own Massachusetts real estate, that real estate would be taxable in Massachusetts at your death. If you could change the character of that real estate to intangible personal property, then it should not be includible in your Massachusetts taxable estate.
Many taxpayers have placed Massachusetts real estate into corporations, partnerships, or limited liability companies. Interests in these entities are all intangible personal property.
The Commissioner of the Massachusetts Department of Revenue has taken the position that if a nonresident places Massachusetts real estate into a corporation or similar vehicle, and there is no business purpose for the entity, the DOR can look through the entity and include the real estate in the estate for estate tax purposes. This position is set forth in proposed regulations issued more than ten years ago - these regulations have never been made final, and the Commissioner's position has never been tested in court.
There is no support in the statute for the DOR's view that it can ignore an entity if there is no business reason for its existence. Further, there are rules for interpreting tax statues - tax laws will be strictly construed, the right to tax must be plainly conferred by the statute - not implied, and ambiguity in taxing statutes is construed against the taxing authority.
