Bumping this because it's still present in 2.8.1.1
To reproduce easily, start as HRE in 1066 and create k_italy, then give_title c_genoa and d_genoa to yourself (ID 1316) and the subholdings if needed (and Nice if you want to wipe out k_genoa). Then create a new merchant republic out of d_genoa, and hand out k_italy to the duke of Lombardy. The republic will be transfered as it is de-jure, but if you open the retract vassals list, it will not be available to retract whereas feudal dukes are.
I noticed also that when giving away k_italy, the dialogue fails to mention the republic as a "vassal going with the title."
Also after handing out the kingdom, give yourself c_provence and d_provence, and create a republic there as well. Note that you can transfer the republic to the king of Italy, but you cannot retract it. Compare to if you transfer a feudal duchy to him, it will be immediately available for retraction.
Gameplay-wise I actually think merchant duchies actually shouldn't be included in automatic transfers at all, as I imagine most players don't ever intend to transfer control of those.
Or possibly there should be some kind of mechanic to encourage merchant republics to create their kingdoms if available -- I've noticed if a Most Serene Republic is destroyed and recreated as a Republic, it rarely/never creates its kingdom title -- whereas a Lord Mayor will happily create, say, Amalfi if he can. I've actually never seen a duchy republic vassal create their kingdom, even when they've existed for centuries and have plenty of gold and piety, but maybe I'm just unlucky. Or maybe have an option for a liege to encourage them to create these titles, or to allow direct creation of merchant-only titles by their feudal liege if the merchant republic completely controls the required land.
Another option that would mesh well with gameplay could be to allow AI duchy republics to create a titular kingdom from their duchy title, even when one is not normally available.