State of Rhode Island - Division of Taxation
Ruling Request No. 2015-01
Request for Ruling Regarding the Inclusion of LLC Interests in a Decedent's Rhode Island Gross Estate
You request a ruling regarding the inclusion of limited liability company interests in a decedent's Rhode Island gross estate.
The facts set forth herein are taken from the statement of facts presented in the request for ruling.Decedent was a nonresident of Rhode Island at the time of her death. Decedent and her spouse formed a limited liability company (LLC) to hold a piece of real property located in Rhode Island. Over a period of time, decedent and her spouse gifted interests in the LLC to their children. Decedent retained an interest in the LLC at her death. Aside from the LLC interest, decedent owned no tangible personal property or real property in Rhode Island.
Notwithstanding any ruling in any pending case to which the Division is a party, whether an interest in an LLC containing Rhode Island real property is subject to the Rhode Island estate tax and is required to obtain a Rhode Island estate tax lien release.
R.I. Gen. Laws § 44-22-1.1 imposes a tax on the transfer of the net estate of every resident or nonresident decedent as a tax upon the right to transfer. If a decedent's estate contains property having a tax situs not within this state, the tax determined is reduced to reflect the ratio of Rhode Island property to the total gross estate. R.I. Gen. Laws § 44-22-1.1(b).
Property has a tax situs within the state of Rhode Island if (1) it is real estate or tangible personal property and has actual situs within Rhode Island or (2) it is intangible personal property and the decedent was a resident. R.I. Gen. Laws § 44-22-1.1(e). Whether an interest in an LLC owning real property in Rhode Island is includible in a non-resident decedent's Rhode Island gross estate depends on whether that interest is considered intangible personal property, tangible personal property or real property.
R.I. Gen. Laws § 7-16-34 provides that, while a membership interest in an LLC is personal property, a member has no interest in specific limited liability company property. Accordingly, for Rhode Island estate tax purposes, a less than 100% member interest in an LLC is considered intangible personal property. Pursuant to R.I. Gen. Laws § 44-22-1.1(e), the intangible personal property of a nonresident is not subject to the Rhode Island estate tax. As a result, a less than 100% interest in an LLC containing Rhode Island real property, owned by a nonresident, would not be subject to the Rhode Island estate tax.1
In contrast, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it affirmatively elects to be taxed as a corporation for federal tax purposes. If no election is made to treat a single member LLC as if it were a corporation, the LLC would be disregarded for Rhode Island estate tax purposes and the value of the real property would be included in the nonresident decedent's Rhode Island gross estate under R.I. Gen. Laws § 44-22- 1.1 (e).
Finally, all Rhode Island real property owned by a decedent at the time of death is subject to a statutory lien imposed under R.I. Gen. Laws § 44-23-13. A discharge of the estate tax lien is necessary to transfer the property and can be obtained by the payment of all estate taxes due the State of Rhode Island. R.I. Gen. Laws § 44-23-14.
Based on the facts provided, the nonresident decedent's less than 100% interest in the LLC is not subject to the Rhode Island estate tax and, consequently, would not require an estate tax lien discharge.
This ruling may be relied upon by the Taxpayer and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying facts described herein change.
David M. Sullivan
March 20, 2015
1It should be noted that the analysis would change in the case of a Rhode Island resident since the intangible property of Rhode Island residents is subject to the estate tax under R.I. Gen. Laws § 44-22-1.1(e). A Rhode Island resident's less than 100% interest in an LLC would be subject to the Rhode Island estate tax but not the statutory lien on real property imposed under R.I. Gen. Laws § 44-23-13.