Section 1402. Imposition of tax

(a)  A  tax  is hereby imposed on each
  conveyance of real property or interest therein when  the  consideration
  exceeds  five  hundred dollars, at the rate of two dollars for each five
  hundred dollars or fractional part thereof; provided, however, that with
  respect to (A) a conveyance of a one, two or three-family house  and  an
  individual  residential  condominium unit, or interests therein; and (B)
  conveyances where the consideration is less than five  hundred  thousand
  dollars,  the  consideration for the interest conveyed shall exclude the
  value of any lien or  encumbrance  remaining  thereon  at  the  time  of
  conveyance.
    (b)  (1)  Notwithstanding  the  provisions  of subdivision (a) of this
  section, in the case  of  any  real  estate  investment  trust  transfer
  occurring  on  or  after the effective date of this subdivision, the tax
  imposed under subdivision (a) of this section shall be  imposed  at  the
  rate  of  one  dollar  for  each five hundred dollars or fractional part
  thereof of consideration.
    (2) (A) For purposes  of  this  subdivision,  the  term  "real  estate
  investment  trust"  (hereinafter referred to as a "REIT") shall have the
  same meaning as in section 856 of the internal revenue code.
    (B)  For  purposes  of  this  subdivision,  the  phrase  "real  estate
  investment trust transfer" shall mean any conveyance of real property or
  an  interest  therein  to  a REIT, or to a partnership or corporation in
  which a REIT owns  a  controlling  interest  immediately  following  the
  conveyance,  which  conveyance (I) occurs in connection with the initial
  formation of the REIT, provided that the conditions set forth in clauses
  (i) and (ii) of this subparagraph are satisfied, or (II) in the case  of
  any  real  estate  investment  trust transfer occurring on or after July
  thirteenth, nineteen hundred ninety-six and before September first,  two
  thousand eleven, is described in the last sentence of this subparagraph.
    (i)  The  value  of  the  ownership  interests  in  the  REIT, or in a
  partnership  or  corporation  in  which  the  REIT  owns  a  controlling
  interest,  received  by the grantor as consideration for such conveyance
  must be equal to an amount not less than forty percent of the  value  of
  the equity interest in the real property or interest therein conveyed by
  the grantor to the grantee and such ownership interests must be retained
  by  the  grantor  or owners of the grantor for a period of not less than
  two years following the date of conveyance; provided, however,  that  in
  the  case  of the death of the grantor or an owner of the grantor within
  such two year period, this  two  year  retention  requirement  shall  be
  deemed  to be satisfied notwithstanding any conveyance of such ownership
  interests held by such individual as a result of such death.  The  value
  of  the  equity interest in such real property or interest therein shall
  be computed by subtracting from the  consideration  for  the  conveyance
  (determined  in accordance with paragraph three of this subdivision) the
  unpaid balance of any loans secured by mortgages or  other  encumbrances
  which  are  liens  on  the real property or interest therein immediately
  before the conveyance. For purposes of this computation, in the case  of
  a  conveyance of real property or interest therein other than a transfer
  or an acquisition of a controlling interest, the amount  of  the  unpaid
  balance  of  any  loans secured by mortgages or other encumbrances to be
  subtracted from consideration is determined  by  multiplying  the  total
  unpaid  balance  of any loans secured by mortgages or other encumbrances
  on the real property or  interest  therein  by  the  percentage  of  the
  ownership  interest  in  the  real  property  or  interest therein being
  conveyed to the grantee. In the case of a conveyance which is a transfer
  or  an  acquisition  of  a  controlling  interest,  such  amount  to  be
  subtracted  is  equal  to  the  sum  of  the  following  amounts:  (I) a
  reasonable apportionment to the interests in real property owned by  the

  entity  of  the  amount  of  any  loans  secured  by encumbrances on the
  ownership interests  in  the  entity  which  are  being  transferred  or
  acquired  and (II) the amount of any loans secured by mortgages or other
  encumbrances  on  the  real  property  of  the  entity multiplied by the
  percentage  interest  in  the  entity  which  is  being  transferred  or
  acquired.  Provided, however that, for purposes of this computation, any
  mortgages or other encumbrances on the real property or interest therein
  which are created in contemplation of the initial formation of the  REIT
  or  in contemplation of the conveyance of such real property or interest
  therein to the REIT or to a partnership or corporation in which the REIT
  owns a controlling interest immediately following the  conveyance  shall
  not be considered.
    (ii)  Seventy-five  percent  or  more of the cash proceeds received by
  such REIT from the sale of ownership interests in  such  REIT  upon  its
  initial formation must be used: (I) to make payments on loans secured by
  any  interest  in  real  property (including an ownership interest in an
  entity owning real property) which is owned directly  or  indirectly  by
  such  REIT; (II) to pay for capital improvements to real property or any
  interest therein owned directly or indirectly by such REIT; (III) to pay
  costs, fees, and expenses (including  brokerage  fees  and  commissions,
  professional  fees  and  payments  to  or  on  behalf  of a tenant as an
  inducement to enter into a lease or  sublease)  incurred  in  connection
  with the creation of a leasehold or sublease pertaining to real property
  or  any interest therein owned directly or indirectly by such REIT; (IV)
  to acquire  any  interest  in  real  property  (including  an  ownership
  interest in any entity owning real property), apart from any acquisition
  to  which  a  reduced  rate  of  tax  is  applicable  pursuant  to  this
  subdivision (without  regard  to  this  clause);  or  (V)  for  reserves
  established  for any of the purposes described in subclause (I), (II) or
  (III) of this clause.  For  purposes  of  this  clause,  the  term  real
  property shall include real property wherever located.
    If  a conveyance otherwise described in this subparagraph occurs other
  than in connection with the initial formation of a REIT,  the  condition
  set  forth  in clause (ii) of this subparagraph shall be disregarded and
  such  conveyance  shall  constitute  a  "real  estate  investment  trust
  transfer"  if the condition set forth in clause (i) of this subparagraph
  would be satisfied  if  "fifty  percent"  were  substituted  for  "forty
  percent" therein.
    (3)  For  purposes  of measuring consideration under this subdivision,
  the fair market value of the real property  or  interest  therein  being
  conveyed  shall  be  calculated  by  dividing (i) the net cash flow from
  operations with respect to  such  real  property  for  the  twelve-month
  period  ending on the last day of the second month preceding the date of
  the conveyance by (ii)  the  sum  of  (A)  the  federal  long-term  rate
  compounded  semi-annually  that  is  determined  by  the  United  States
  secretary of the treasury under section 1274(d) of the internal  revenue
  code  in  effect thirty days prior to the date of the conveyance and (B)
  two percentage points. Provided however, if the commissioner of taxation
  and finance determines that either the amount  in  clause  (i)  of  this
  paragraph  or  clause  (ii)  of  this  paragraph  does  not result in an
  accurate representation of the fair market value of such  real  property
  or  interest  therein  as  such  value  is  to  be determined under this
  paragraph, the commissioner may adjust either of such amounts.  In  lieu
  of  utilizing  the  method  prescribed in this paragraph for determining
  fair market value, the taxpayer may utilize any method  for  determining
  fair  market  value  that  the  commissioner of taxation and finance has
  prescribed in rules or regulations or otherwise.