Attorney General Opinions

The Honorable Sharron S. Mitchell

Clerk, Circuit Court of the City of Fredericksburg

You ask whether the recording of a "credit line leasehold deed of trust" in accordance with a debtor’s plan of reorganization confirmed by the bankruptcy court is subject to state and local recordation taxes.¹

It is well-settled that a federal law supplants a conflicting state law, by virtue of the Supremacy Clause of the Constitution of the United States.² Under the federal Bankruptcy Code, "[t]he issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed^[3] …, may not be taxed under any law imposing a stamp tax or similar tax."⁴ Thus, assuming that the deed of trust in question falls within these parameters and is presented for recording in accordance with a bankruptcy court’s order of confirmation of a debtor’s plan of reorganization, such deed of trust is not subject to a stamp tax or similar tax.

In determining whether recordation taxes fall within the Bankruptcy Code exemption, the Department of Taxation has repeatedly concluded that transfers of property pursuant to a properly confirmed plan of reorganization may not be taxed under any law imposing a stamp or similar tax, which includes a recordation tax.⁵ Although administrative interpretations are not necessarily controlling, great weight is to be given to the construction of a statute by a state official charged with its administration.⁶ In my opinion, therefore, the Bankruptcy Code exemption is applicable to the instrument in issue.⁷

¹See Va. Code Ann. tit. 58.1, ch. 8, §§ 58.1-800 to 58.1-816.1 (Michie Repl. Vol. 2000 & Supp. 2001) (governing state recordation tax); § 58.1-3800 (Michie Repl. Vol. 2000) (authorizing local recordation tax).

²U.S. Const. art. VI, cl. 2.; Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 210-11 (1824).

³See 11 U.S.C.A. § 1129 (West 1993 & Supp. 2000) (outlining requirements for Chapter 11 bankruptcy plan of reorganization).

⁴11 U.S.C.A. § 1146(c) (West 1993).

⁵See 1986-1994 Va. Tax Rep. (CCH): Comm’r Rul. 92-174, ¶ 202-203 (Sept. 10, 1992); Comm’r Rul. 89-352, ¶ 201-854 (Dec. 20, 1989); Comm’r Rul. 88-271, ¶ 201-695 (Oct. 14, 1988); accord 1975-1976 Op. Va. Att’y Gen. 383, 384 (noting that state recordation tax was designed to continue former federal documentary stamp tax).

⁶See Forst v. Rockingham, 222 Va. 270, 276, 279 S.E.2d 400, 403 (1981); 1993 Op. Va. Att’y Gen. 258, 259.

⁷Accord In re NVR, LP, 189 F.3d 442, 458 (4th Cir. 1999), cert. denied, 528 U.S. 1117 (2000) (holding that § 1146(c) grants recordation tax exemptions to property transfers occurring under confirmed plan after date of plan confirmation).