Document Number
05-20
Tax Type
Recordation Tax
Description
Refinancing with the same lender
Topic
Assessment
Taxable Transactions
Date Issued
02-28-2005


February 28, 2005



Re: § 58.1-1821 Application: Recordation Tax

Dear *****:

This will reply to your letter in which you request a refund of state recordation tax paid by your client, ***** (the "Taxpayer"), for recording a deed of trust. I apologize for the delay in the responding to your letter.

FACTS

In 1991, the Taxpayer filed a deed of trust memorializing a note with a particular lender (the "Lender") in the circuit court of a Virginia county (the "County") and paid a recordation tax on the amount secured. In 1995, the Taxpayer filed another deed of trust memorializing a note with the Lender in the circuit court of the County and paid a recordation tax on the amount secured. In 1998, the Taxpayer refunded the, balance outstanding on the 1991 deed of trust and issued new bonds. The Taxpayer filed another deed of trust memorializing a note with the Lender in the circuit court of the County. The Taxpayer paid a recordation tax on the balance of the deed of trust after the refund to the Lender based on the amount secured.

In 2003, the Taxpayer filed a deed of trust memorializing a note with the Lender in the circuit court of the County that refinanced the two outstanding notes. This deed of trust secured obligations greater than the value of the underlying real estate. The County circuit court clerk assessed a recordation tax based on the total value of the underlying real estate.

The Taxpayer has paid the assessed recordation tax and contests the assessment. You contend that because recordation tax was paid in full on the two outstanding deeds of trust, and that the underlying real estate's value is less; than the balance of the two outstanding deeds of trust, no recordation tax should have been due upon the recordation of the 2003 deed of trust. The clerk's position is that the recordation tax can be based on either the value of the real estate or the additional amount of the obligation being refinanced.

DETERMINATION

Virginia Code § 58.1-803 A provides, in pertinent part, "A recordation tax on deeds of trust or mortgages is hereby imposed at a rate of 15¢ on every $100 or portion thereof of the amount of bonds or other obligations secured thereby . . . ." The recordation tax is assessed on the amount of bonds or other obligation secured by the conveyance of property described in a deed of trust. The underlying obligation is a separate document that is not recorded and not subject to recordation tax.

The tax is not imposed on the total amount of the bonds or other obligations described in a deed of trust, but on the amount that is secured by the property conveyed. Therefore, the amount secured by a recorded deed of trust can never be more than the fair market value of the property described and conveyed by the deed. The tax will be limited to the fair market value of the property conveyed whenever the amount of the bonds or other obligations exceeds the value of the property conveyed. See Title 23 of the Virginia Administrative Code ("VAC") 10-320-40 and Public Document ("P.D.") 00-121 (6/30/00).

Virginia Code § 58.1-803 D provides:
    • On deeds of trust or mortgages, the purpose of which is to refinance or modify the terms of an existing debt with the same lender, which debt is secured by a deed of trust or mortgage on which the tax imposed hereunder has been paid, the tax shall be paid only on that portion of the amount of the bond or other obligation secured thereby which is in addition to the amount of the original debt secured by a deed of trust or mortgage on which the tax has been paid. The instrument shall certify the amount of original debt. [Emphasis added.]

In a refinancing with the same lender, recordation tax is paid only on the amount secured that exceeds the amount of the original debt secured by a deed of trust. When the provisions of Va. Code § 58.1-803 A and Va. Code § 58.1-803 D apply to a particular recordation, they both must be considered when determining a taxpayer's recordation tax liability.

In the instant case, two outstanding deeds of trust are being refinanced with the same lender, and the secured obligations exceed the fair market value of the property. Because the fair market value of the real property was less than the outstanding balance of the two deeds of trust being refinanced, and recordation tax was previously paid on the fair market value of the real property, no recordation tax was due upon the filing of the 2003 deed of trust. Accordingly, a refund for the state portion of the recordation tax will be issued shortly. A copy of this letter will be forwarded to the County for disposition of the local portion of the tax.

The Code of Virginia sections, regulation and public document cited are available on-line in the Tax Policy Library section of the Department's web site located at www.policylibrary.tax.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,


                    • Kenneth W. Thorson
                      Tax Commissioner



AR/45124B


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46