Crescent Real Estate bought Hughes Center from Rouse Co. and no property transfer tax was paid by either party in the $225 million deal. Photo by Jeff Scheid.

Large corporations have found a loophole in Nevada law that allows them to avoid paying millions of dollars in real property transfer taxes, a Las Vegas developer said Thursday.

Not a dime in transfer taxes was paid when Rouse Co. sold Hughes Center to Crescent Real Estate Equities for about $225 million, nor when General Growth Properties acquired the Fashion Show mall and other Rouse retail properties in a $12.6 billion deal.

On the flip side, more than $1.2 million was paid when TrizecHahn sold the Desert Passage mall at the Aladdin to a company called Boulevard Invest for $241.5 million.

That should make the transfer tax unconstitutional because there's a separate class that pays it and one that doesn't, argued Stephen Gilmore, president of the Gilmore Co.

He and his partners paid $145,000 in transfer taxes last year when they sold the Westcliff House business center on Buffalo Drive.

"It's a loophole, and the Legislature knows good and well they did it, but nobody has the balls to do anything about it," Gilmore said. "I'm incensed by it. I don't think it's fair. All these deals get done because some clever attorney goes around it."

Article 10, Section 1 of the Nevada constitution says: "The Legislature shall provide by law for a uniform and equal rate of assessment and taxation, and shall prescribe such regulations as shall secure a just valuation for taxation of all property."

There are 13 exemptions provided under Nevada Revised Statutes 375.090 to the real property transfer tax, which was doubled during the 2003 Legislative session to 0.5 percent of assessed value.

Exemption No. 8 deals with the transfer of property to another business entity when the grantor is 100 percent owner. Real property transfer taxes are not paid on transactions where the buyer purchases stock or a membership interest in a "single-asset entity" or a limited liability corporation that owns the property.

In the Hughes Center deal, an operating agreement was drafted in January 2004 by Howard Hughes Properties Limited Partnership for each building.

For example, 3800 HHP LLC, was formed just before the property was sold. The parent company then transferred 100 percent interest in the building to Crescent, thereby avoiding the tax because no property title was transferred at the Clark County Recorder's Office.

Gilmore said the seller is normally responsible for paying the tax, but it can become a bargaining point on large transactions where the tax can amount to millions of dollars.

Sen. Randolph Townsend, R-Reno, chairman of the Commerce and Labor Committee, said he tried to address the loophole at the last Legislature.

"Nobody wanted to listen," he said. "There was not enough interest. I couldn't get anyone to pay attention to it. If a property transfers ownership, that's the definition (a of real property transfer tax). Why should we exempt that? We debated every one of the exemptions at great length. It was painful, but that's what the job is."

Townsend said it's much easier for the Legislature to accurately predict how much real property tax will go to the state's general fund from residential transactions. If it's a growth year, tax revenue will increase. If sales slow, taxes drop.

These larger corporate transfers of properties only occur once in a while, and even though they're huge, they can't be counted on for the general fund, he said.

Gilmore said a $280,000 transfer tax was paid when Barrick Gaming acquired the Plaza and other downtown property from Jackie Gaughan, but nothing will be paid on the combined $17.3 billion in gaming company mergers between MGM Mirage-Mandalay Resort Group and Harrah's-Caesars.

"I think the Legislature needs to make it so any swap of more than 10 percent of stock of a corporation is subject to the transfer tax on real property assets," Gilmore said. "I'm not saying they should pay on the value of the merger. They should be paying it on assessed value of real property like every other Nevadan does."