Tax Type
Recordation Tax
Description
Deed from Liquidating Corporation to Stockholders
Topic
Documents Subject to Tax
Date Issued
12-08-1970
The recordation of a deed conveying property from a liquidating corporation to its stockholders is subject to a tax based on the fair market value of the property conveyed, under §§ 58-54 and 58-65.1 of the Virginia Code. It is also subject to a realty transfer tax, under § 58-54.1, which is applied to the amount of unsecured debt apportioned to the real property to be recorded and distributed in liquidation.
I have received your letter of December 2, in which you ask whether the taxes provided by §§ 58-54 and 58-65.1 are imposed on the recordation of a deed conveying property from a liquidating corporation to its stockholders.
The taxes are imposed on ``every deed, except a deed exempt from taxation by law, which is admitted to record' I am aware of no exemption for liquidating dividends and am of the opinion that the taxes provided by §§ 58-54 and 58-65.1 should be imposed on the fair market value of the property conveyed.
I also call to your attention the tax imposed by Virginia Code § 58-54.1. As you are aware, this tax was adopted coincident with the repeal of § 4361 of the Federal Internal Revenue Code of 1954 and is intended to continue the repealed federal tax as a State tax. Realty transferred in liquidation was deemed realty sold for the purposes of the federal tax if liabilities of the liquidating corporation were satisfied or assumed by the stockholders. In a special ruling, dated October 23, 1942, and found at 1968 CCH Federal Excise Tax Reports Par. 3319.16, the Internal Revenue Service set forth the method of computing the federal tax on a liquidating dividend. I agree with the special ruling and I have applied it to Virginia Code § 58-54.1 in the balance of this letter.
No § 58-54.1 tax is imposed upon liquidating dividends, as such. If, however, a stockholder assumes the liabilities of a liquidating corporation, such assumption will be deemed consideration for assets in an equal amount. If a liquidating corporation is indebted to its stockholders, the satisfaction of such debt by the liquidation will be deemed consideration for assets in an equal amount.
Assets distributed to stockholders in liquidation of a corporation are treated as sold to the extent of liabilities assumed or satisfied. Unless specific assets are clearly allocated to the assumption and satisfaction of such liabilities, the liabilities will be treated as consideration for a proportionate part of each asset distributed.
Each prior secured debt should be allocated to its collateral property and apportioned among such property in proportion to fair market value. To the extent that such prior secured debt is secured by real estate, no recordation tax is imposed by § 58-54.1 on the recordation of the collateral property. If the only debts owing the stockholders were secured before, and for other reasons than, the liquidation and no unsecured liabilities are assumed by the stockholders, no § 58-54.1 tax is imposed on the recordation of the property distributed in liquidation.
All unsecured debt, assumed or satisfied, should be apportioned among the net equity balances, determined at fair market value, of all of the corporate assets. The § 58-54.1 tax rate is then applied to the amount of unsecured debt apportioned to the real property to be recorded.
Attorney General's Opinion