06-3 | Virginia Tax

Tax Type

Recordation Tax

Description

Refinancing transactions qualify for the exemption under Va. Code § 58.1-803 D

Topic

Exemptions

Payment and Refund

Date Issued

01-06-2006

January 6, 2006

Re: § 58.1-1821 Application: Recordation Tax

Dear *****:

This will reply to your letter in which you request a refund of the recordation tax paid by ***** (the "Taxpayers"), for two separate refinancing transactions. I apologize for the delay in responding to your letter.

FACTS

The Taxpayers purchased a home in July 2004, which they financed through ***** ("Lender A"). A recordation tax was paid on the deed of trust. Lender A immediately resold the deed of trust to ***** ("Company B"). On two separate occasions, the Taxpayers refinanced their mortgage with Lender A and paid the full recordation tax on the deeds of trust. Each time Lender A immediately resold the deed of trust to Lender B. The Taxpayers contend that the refinancing transactions qualify for the exemption under Va. Code § 58.1-803 D and request a refund of the recordation taxes paid on the amount of the existing debt on which tax was previously paid.

DETERMINATION

Virginia Code § 58.1-803 A imposes the recordation tax on deeds of trust, mortgages, and supplemental indentures. Virginia Code § 58.1-803 D exempts from the recordation tax certain refinanced deeds of trust and mortgages by providing that:

- 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 existing debt secured by a deed of trust or mortgage on which the tax has been paid. [Emphasis added.]

When a deed of trust is used in refinancing an existing debt with the same lender and the tax has been previously paid on the original deed of trust securing the debt, the recordation tax will not apply to the deed of trust for the existing debt.

The Virginia Attorney General issued an opinion that addresses the exemption from recordation tax when lenders provide refinancing of certain deeds of trust. See 1992 Att'y Gen. Ann. Rep.181. The opinion interprets the phrase "existing debt with the same lender" to mean that the "existing debt, rather than the original debt, be with the same lender who is providing the refinancing." The Attorney General, further, concluded that the "same lender" in Va. Code § 58.1-803 D means that the lender providing the refinancing must be the same as the lender now holding the existing debt being refinanced. The recordation tax exemption, therefore, applies when the existing debt is being refinanced by the lender who holds the debt. The Commissioner agreed with the Attorney General's interpretation in Public Document ("P.D.") 96-384 (12/20/96).

The Taxpayers' contend that in each of their three deeds of trust, Lender A immediately resold the deed of trust to Lender B; therefore, Lender A is an agent of Lender B and each of the refinancings was made with the same lender.

Black's Law Dictionary (6th Edition) defines "agency" as a relationship between two persons, by agreement, or otherwise, where one (the agent) may act on behalf of the other (the principal) and binds the principal by words and actions. The Taxpayers have provided no evidence that Lender A is the agent of Lender B. Consequently, the Department cannot accept the Taxpayer's assertion.

The intent of Virginia Code § 58.1-803 D is to provide a narrow exclusion for the refinancing of existing debts with the same lender from the payment of an additional recordation tax. The Taxpayers contend that the Attorney General's interpretation of the phrase "same lender" defeats the purpose of Virginia Code § 58.1-803 D because it is accepted practice for mortgage originators to sell their mortgages to third parties, and homeowners typically go to the same lenders for refinancing.

The Department recognizes that the mortgage industry has changed in recent years. The law, however, has not been amended and its interpretation was made known to the public in the Attorney General's opinion in 1992 and again in the Department of Taxation's P.D. 96-384. While it may be true that mortgage originators typically sell their mortgages to third parties and homeowners typically go to the same lenders for refinancing, taxpayers are on notice that they must refinance with the mortgage company that actually holds the deed of trust (i.e., the mortgage company that the taxpayer is making his mortgage payment to at the time of the refinancing) to qualify for the exemption in Va. Code § 58.1-803 D.

Accordingly, the Taxpayers' request for refund of recordation taxes paid on the two refinancing transactions is denied. The Code of Virginia section, Attorney General's opinion and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/56814B

Rulings of the Tax Commissioner