Former U.S. Rep. Mark Neumann, Republican candidate for governor, cited an inappropriate exemption to avoid paying tens of thousands of dollars in real estate transfer fees on land deals in 2008.
Neumann Developments, which he heads, claimed a particular state exemption - 77.25(15) - from these fees, which are usually imposed every time property is transferred from one owner to another, at a rate of $3 per $1,000 of value.
The most substantial of these transfers, from Neumann Developments to another Neumann corporation, MN Holdings, took place on May 22, 2008. It involved five counties and more than 120 property lots. Neumann's son Matt filed the articles of corporation for MN Holdings just two weeks before, on May 8, 2008, although Mark Neumann has elsewhere signed documents purporting to be its president.
Neumann, through an intermediary, admits the claimed exemption was improper. The warranty deed transfer documents filed with these five counties were drafted and signed by Mark Neumann himself.
"The deal here is it was a screw-up," says Chris Lato, a spokesman for Neumann's campaign. "Neumann Developments Inc. had been advised that transfers between companies with the same ownership did not require the payment of the transfer fee. These are essentially transfers from Neumann to Neumann."
Lato adds, "The folks at the register of deeds office also accepted this premise and allowed the transfers to be filed. Neumann Developments Inc. followed what it believed to be appropriate procedures. Turns out they were wrong."
They were. The stated exemption was for the transfer of property between a corporation and its shareholders. But the transfers at issue were actually between two corporations: Neumann Developments and MN Holdings.
"Corporation to corporation is not normally exempt," says Pharis Horton, a veteran Madison real estate lawyer who reviewed documents of the transfers at Isthmus' request. He says the statute is "not a model of clarity" and an inadvertent mistake could have been made.
But in reviewing the statute, Horton found an annotation clearly stating that for the 77.25(15) exemption to apply, the transfer must be between a corporation and "humans," not other corporate entities.
Additionally, some if not all of the properties were transferred to MN Holdings less than three years after being acquired by Neumann Developments. The statute says the exemption applies only "if the corporation owned the property for at least 3 years."
"On its face, you hand me the document that says it goes from this corporation to another corporation, and this exemption just doesn't fit," says Horton. "It doesn't look right."
Indeed, Horton says the matter should have been flagged by the state Department of Revenue for further review. But it's not clear whether this occurred.
That the register of deeds offices accepted Neumann's claimed exemption is not surprising, nor does it mean, as Lato suggests, that the offices agreed they were proper.
According to state statute 77.22: "The register shall have no duty to determine either the correct value of the real estate transferred or the validity of any exemption or exclusion claimed." It merely requires that the reason for the exemption be stated on the conveyance.
Several sources said the real checking is supposed to be done by the state Department of Revenue, which should have caught the inappropriate exemption claimed by Neumann Developments in these deals.
Lato says Neumann has taken steps to pay the fees that were wrongfully withheld, on these and other property transfers, but it's unclear whether any such steps were taken before the violations were caught.
Department of Revenue spokeswoman Stephanie Marquis says her agency "cannot speak about a specific taxpayer or entity," due to confidentiality rules. She adds that it continually monitors real estate transfer returns and conducts thousands of audits each year, taking "appropriate action when fees are not paid correctly."
In cases of improper exemptions, the DOR assesses the full real estate transfer fee, plus 12% interest and 25% penalties.
The amount of fee payments in the Neumann transactions is not insubstantial. DOR records ascribe a market value to properties, even when a transfer fee exemption is claimed.
Isthmus was able to trace the value of four deals that occurred on May 22, 2008, and find the corresponding amounts: Milwaukee Co., $1,038,000; Waukesha Co., $750,000; Jefferson Co., $1,297,500; Kenosha Co., $2,792,500; as well as another transfer that took place between Neumann Developments and MN Holdings in Jefferson County on Sept. 30, 2008, with a listed value of $1,475,000.
Add it all up and these five deals alone total $7,353,000 in property value, meaning the transfer fees on this amount would have come to $22,059, not including interest and penalties.
Records obtained by Isthmus of DOR payments to counties based on recent audits do not appear to show that the wrongful exclusions from May 22, 2008, resulted in fines, although this may have happened subsequent to these reports.
But they do show that Neumann Developments and MN Holdings have been fined several times over real estate transfer fees, most notably for a November 2006 transfer in Jefferson County of a property valued at $1.4 million. Neumann Developments had to pay a total of $6,578 - which it did, on June 29, 2009. This consisted of a $4,200 fee, a $1,050 penalty and $1,328 in interest.
Marquis says DOR conducts thousands of transfer fee audits each year: "We have a four-year statutory window to go back and conduct audits, and the department does indeed go back and review exemptions as needed."
