Refund of Real Estate Taxes Paid from Escrow by Mortgage Lender
Collection of Tax
Payment and Refund
[Opinion - Virginia Attorney General: 1991 at 272]
REQUEST BY: The Honorable Richard A. Cordle Treasurer for Chesterfield County P.O. Box 70 Chesterfield, Virginia 23832
OPINION BY: Mary Sue Terry, Attorney General
You ask two questions concerning the proper procedure for the payment of certain tax refunds. Specifically, if a mortgage lender pays the real estate tax on a particular property from an escrow fund on behalf of the property owner, you ask whether your office should direct the refund due to the mortgage lender or to the property owner. You also ask if a personal property tax refund should be directed to the person or entity that actually made the payment of the tax or to the person in whose name the property is listed on the personal property tax book.
I. Applicable Statutes
Section 58.1-1 of the Code of Virginia defines a "taxpayer" as "every person . . . subject to taxation under the laws of this Commonwealth, or under the ordinances, resolutions or orders of any county, city, town or other political subdivision of this Commonwealth."
Section 58.1-3281 provides that real estate taxes shall be assessed to the owner of the real estate as of January 1 of the tax year. § 58.1-3516 makes a similar provision for the assessment of personal property.
The first paragraph of § 58.1-3981 provides that "the governing body of the county . . . shall, upon the certificate of the commissioner with the consent of the . . . county attorney . . . that such assessment was erroneous, direct the treasurer of the county . . . to refund the excess to the taxpayer . . . ."
Section 58.1-3987 further provides in its first paragraph: "If the court is satisfied from the evidence that the assessment is erroneous . . . the court shall order that [the tax] be refunded to the taxpayer . . . ."
Section 58.1-3990, in its first paragraph, authorizes a county to "provide . . . for the refund of any local taxes . . . erroneously paid. If . . . the commissioner of the revenue is satisfied that he has erroneously assessed any applicant . . . the tax-collecting officer . . . shall refund to the applicant the amount erroneously paid . . . ."
II. Property Owner is "Taxpayer" and Should Receive Any Refund Due
With the exception of § 58.1-3990, all the relevant statutes, quoted above, identify the "taxpayer" as the recipient of any refund when taxes have been overpaid. Although § 58.1-3990 uses the term "applicant," since the "applicant" has been assessed with tax, any such applicant must, by definition, be a "taxpayer." See § 58.1-1 (defining "taxpayer" as every person subject to local tax). §§ 58.1-3281 and 58.1-3516 make it clear that the "taxpayer" assessed with real or personal property taxes is the person or entity that owned the property on January 1 of the tax year. It is my opinion, therefore, that the payment of tax refunds generally should be made to the property owner as of January 1, rather than to a mortgage lender or some other person or entity that may have paid the tax on the owner's behalf.
III. Lease May Transfer Tax Obligation and Refund Right to Tenant; Taxpayer May Assign Right to Refund
It is possible, of course, that by a lease or other contractual agreement, the holder of legal title may have transferred both possession of the property and the obligation to pay the tax on the property to a tenant or other party to such contract, who would then become the "taxpayer" for refund purposes.
In addition, a taxpayer may assign the right to receive a tax refund. See, e.g., Judd v. First Federal Sav. and Loan Ass'n, 710 F.2d 1237 (7th Cir. 1983) (clause in deed of trust giving lender sole discretion to credit excess escrow funds to loan balance or return funds to borrower indicative of borrower's surrender of control over escrowed funds). A contractual agreement, therefore, between a taxpayer and a third party, such as a mortgage lender, may control which party is entitled to receive a refund of local real estate taxes. Similarly, a taxpayer may authorize the direct payment of the refund to a third party.
As discussed in Part I above, the "taxpayer," as defined in § 58.1-1, ordinarily will be the owner of real or personal property. In my opinion, however, where a lease or other document makes it clear that a tenant or other third party is financially responsible for payment of the tax, and that person actually has paid the tax, he or she should be considered the "taxpayer" entitled to the refund. Similarly, it is my opinion that, when the treasurer has clearly documented evidence that the taxpayer has assigned the right to a refund to a mortgage lender or other third party, the treasurer may pay any refund approved in the statutorily prescribed manner to the taxpayer's assignee.