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Should Pegula purchase price be public? Erie County asks state

When Buffalo Bills owners Terry and Kim Pegula bought an old industrial building near the KeyBank Center, The Buffalo News reviewed the public records and reported the purchase price, $7 million.

A lawyer for the Pegulas quickly objected in February, arguing the sale was arranged privately as a transaction between business entities and not a property transfer, so the public was not entitled to know the purchase price.

The figure had been extracted from a key tax document that had to be filed with the government, not from a deed. Under state law, the Erie County Clerk’s Office should have kept the detail out of the public record, the law firm contended.

So the clerk’s office asked the state Office of Real Property Services for its opinion and for guidance on what to do in future situations.

The answer, whenever it arrives, won’t pertain to just one property sale in which the horse has left the barn.

If state officials side with Buffalo’s Hodgson Russ LLP law firm, the sale price on hundreds of similarly arranged property transactions around the state, usually between business entities or limited liability companies, would be kept from public view — at least in the counties that apply the state law as Erie County did.

Shhh! Pegulas pay $7 million for Cobblestone District building

The shift could solidify one notable exception to government’s long-standing practice to reveal sale prices because doing so benefits both buyers and sellers. The secrecy would further hamstring tax assessors when they go about revaluing properties in their municipalities.

“The goal is to be fair for all the taxpayers,” said Joseph H. Emminger, the Town of Tonawanda supervisor who also is president of a Buffalo appraisal firm. “When they hide information from the assessor, it creates a problem for all the taxpayers.”

The Pegulas in February completed the purchase of a five-story building in Buffalo’s Cobblestone District, near the home of their Buffalo Sabres. The new acquisition had housed a company called Hi-Temp Fabrication, owned by three members of the McKendry family.

In advance of the sale, each family member created a limited liability company to hold their interest in the property, which had two addresses — 55 Illinois St. and 79 Perry St. The three LLCs were named Illinois Perry 1, 2 and 3. Those LLCs eventually transferred the property to a fourth LLC, named “Illinois Perry.”

At some point, the Pegulas acquired control of the LLCs, buying out the McKendrys and gaining ownership of the building. It was not an "arm's-length" property sale used by millions of homeowners. So when the deeds were transferred among the LLCs, with common ownership, they were each recorded as a $1 sale.

But the buyers still had to pay the state and county “transfer tax,” a fee of $9 for every $1,000 of the actual sale price on real property. Three transfer-tax forms completed by the attorneys involved and filed with the county showed the $7 million total purchase price, and the sum was reported on a cover page that the clerk’s office made available to the public.

The Buffalo News Feb. 10 reported the $7 million sale. Later that morning, a Hodgson Russ lawyer sent an email to Patricia Fulwiler, the deputy Erie County clerk for legal matters. The Hodgson lawyer, Amy Fitch, put the word “urgent” in her subject line.

The transfers were showing up in the clerk’s online records, she told Fulwiler.

“We need to have this information pulled from the online records immediately,” she wrote.

County officials eventually did so.

Later that day, Fitch forwarded research that, she believes, shows information from the document in question — the “TP-584” — is not public. She said officials at the State Office of Real Property Services, a division of the Department of Taxation and Finance, agree.

Soon after, Fulwiler and Acting County Clerk Peggy LaGree asked the state officials for guidance.

“We have not completed our analysis,” Taxation department spokesman Cary B. Ziter told The News by email days ago. When completed, the "advisory opinion" will be "an expression of the department’s position" for any interested party, he said.

At issue is whether the information – the purchase price or "consideration" paid for real estate – should be public information because it's disclosed on a tax form, rather than on the normal "real property transfer report" that accompanies every deed.

"I think it may be an unwarranted invasion of privacy for it to be disclosed by a public agency or individuals at a public agency like a clerk's office," said Doug Dimitroff, a real estate attorney at Phillips Lytle LLP. "It's information that is included on a tax form."

The ability to transfer property by acquiring a limited liability company that owns a property rather than the property itself effectively creates a loophole through which buyers and sellers can evade public disclosure of how much was paid.

"It's not done to avoid paying transfer tax," said attorney Corey Auerbach of Barclay Damon LLP. "It's done to avoid the public disclosure."

However, that can affect not only municipal assessments but fair-market appraisals, which in turn affect property taxes and future sales.

Orchard Park Assessor Milton Bradshaw says he doesn't know why buyers are not forced to file documents revealing the price.

"You don't know what's the true selling price," he said.

Bradford Kendall is the county clerk in Dutchess County and president of the state Association of County Clerks.

The association hasn’t taken a position on the issue that has bubbled up in Erie County, he said. But when similar sales occur in Dutchess County, his staff makes sale amounts available to the public by disclosing the amount of transfer tax paid. The figure helps anyone interested calculate the sale price.

“If we collect the tax, it is reflected on our cover sheet,” he said.

But if the Department of Taxation and Finance tells clerks around the state to change their practice, he will do so.

“If they maintain their position that it is public information, we will comply with that,” he said. “If at some point they decide it should not be disclosed, then we won’t.”

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