Tax Type
Recordation Tax
Description
Taxpayer is entitled to an exemption for refinancing a debt with the same lender
Topic
Computation of Tax
Exemptions
Local Taxes Discussion
Property Subject to Tax
Date Issued
01-13-2010
January 13, 2010
Re: § 58.1-1821 Application: Recordation Tax
Dear *****:
This will reply to your letter in which you request a refund of state and local recordation taxes paid by ***** (the "Taxpayer") for recording a refinanced deed of trust.
FACTS
The Taxpayer's original 2004 home mortgage was held by ***** (Lender A). In March 2009, the Taxpayer refinanced his mortgage in ***** (the "County"). The County's deed of receipt shows the Taxpayer refinanced with ***** (Lender B).
The County determined that the Taxpayer was not entitled to the provisions under Va. Code § 58.1-803 D for refinancing with the same lender because Lender A and Lender B did not qualify as the same lender. The Taxpayer contends that the refinanced loan was made through the same lender.
DETERMINATION
Virginia Code § 58.1-803 A imposes the recordation tax on deeds of trust, mortgages, and supplemental indentures. Under Va. Code § 58.1-803 D, 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 only apply to the portion of the deed of trust that exceeds the amount originally secured by the original debt.
The Department has defined "existing debt with the same lender" to mean that the lender providing the refinancing must be the same as the lender now holding the existing debt being refinanced. See Public Document (P.D.) 96-384 (12/20/1996) and P.D. 06-3 (1/6/2006). In other words, in order to qualify for the exemption provided in Va. Code § 58.1-803 D, a taxpayer must refinance his debt with the mortgage company that holds the deed of trust.
The Virginia Attorney General opined in 1996 Att'y Gen. Ann. Rep. 07191996 (7/19/1996), that a financial institution that merges with, or acquires another financial institution holding existing debt to be refinanced is considered to be the "same lender" for purposes of Va. Code § 58.1-803 D, whereas parent and subsidiary financial institutions, structured as separate legal entities, do not qualify as a same lender. The issue, therefore, is whether Lender A and Lender B were related but separate legal entities, or whether the Lender B qualifies as the same lender as Lender A.
According to the evidence, Lender A merged into Lender B in May 2004. As such, Lender B became Lender A for purposes of the Taxpayer's first mortgage. Thus, the Taxpayer's refinancing occurred with the same lender in accordance with Va. Code § 58.1-803 D. The refinancing mortgage was greater than the original mortgage. The Taxpayer was, therefore, entitled to the exemption for refinancing a debt with the same lender. Recordation tax was validly paid on the amount of the refinanced mortgage that exceeded the original mortgage.
For the reasons set forth above, a refund for the state portion of the recordation tax paid for the refinanced portion of the deed of trust will be issued shortly pursuant to the enclosed schedule. 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 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, please contact ***** the Office of Tax Policy, 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/1-3429523989.B
Rulings of the Tax Commissioner