Tax Type
Recordation Tax
Description
Correct fair market value of property
Topic
Assessment
Computation of Tax
Date Issued
08-23-2006
August 23, 2006
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.
FACTS
In December 2005, the Taxpayer recorded a credit line deed of trust in the Clerk's Office of the Circuit Court of ***** (the "Locality"). The value of the real estate securing the deed of trust is less than the maximum amount secured by the deed of trust. The Locality assessed the recordation tax based on the maximum amount secured by the deed of trust.
The Taxpayer appeals the assessment and contends that the recordation tax should be limited to an amount based on the fair market value of the real estate.
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 25¢ 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, Public Document (P.D.) 00-121 (6/30/2000) and P.D. 05-20 (2/28/2005).
The information provided indicates that the actual sales price of the parcels differs from the assessed value on the Locality's records. Both values are less than the maximum amount secured by the deed of trust. As such, the recordation tax is limited to the fair market value of the property. The issue, therefore, is what amount to value the property on which the recordation tax should be based.
The assessed value is accorded a very strong presumption of accuracy in determining fair market value. The Clerk of the Circuit Court, however, is not required to use the assessed value to the exclusion of other reliable information as to the current fair market value. If it can be shown by clear and cogent evidence why the assessed value does not reflect fair market value as of the date of the transaction, the Clerk has the authority to rely on such evidence to determine the proper amount of the recordation tax. See P.D. 00-97 (5/26/2000).
Placing a value on real estate is entirely a factual determination that is best made by one who is thoroughly familiar with the property itself and local market conditions. This responsibility lies with the Clerk when the value must be determined for recordation tax purposes. See P.D. 91-146 (8/2/1991).
The Department will send a copy of this letter to the Clerk and request a review of the determination of the actual value of the property, taking into consideration all relevant and reliable information available. When the Clerk informs the Department of the correct fair market value, the Department will refund the appropriate amount of state recordation tax. A refund of the local recordation tax would be issued by the Locality.
The Code of Virginia sections, regulation and public documents 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, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-493869723B
Rulings of the Tax Commissioner