Tax Type
Recordation Tax
Description
Deeds Relating to Corporate Organization;Deed of Trust
Topic
Exemptions
Date Issued
06-26-1985
June 26, 1985
Dear ****
This is in response to your letter of April 18, 1985 requesting a ruling on the taxability of a deed of trust recently presented to you for recordation. I apologize for the delay in my response.
The deed of trust is one of four instruments, none of which contain anything on the face of the instrument to indicate that it is exempt from tax. However, additional information indicates that two of the instruments are exempt under § 58.1-811 A.6. because they are deeds conveying property to a corporation upon its organization by persons in control of the corporation in a transaction which qualifies for nonrecognition of gain or loss pursuant to § 351 of the Internal Revenue Code. Another instrument is exempt under § 58.1-811 A.10. because it is a deed conveying property to a partnership and the grantor (one of the newly organized corporations) is entitled to receive not less than 50% of the profits and surplus of the partnership.
The instrument in question is a purchase money deed of trust from one of the newly organized corporations which conveys the property it received in one of the above deeds to trustees to secure a note. No information on the note has been provided except that it is part of the transaction on which no gain or loss will be recognized pursuant to § 351 I.R.C.
It appears that the individuals involved have conveyed property to a corporation in exchange for stock of the corporation and a note secured by the deed of trust in question. Because this transaction qualifies for nonrecognition under § 351 I.R.C. and took place upon organization of the corporation, the deed conveying the property to the corporation is clearly exempt from recordation tax under § 58.1-811 A.6. However, the deed of trust securing the note is not exempt even though it is part of the transaction described in § 58.1 811 A.6.
§ 58.1-811 A.6. sets out a three pronged test for a conveyance to be exempt from state recordation tax. See an opinion dated September 30, 1977 found in the Report of the Attorney General, 1977-1978, at page 439 (copy enclosed). The exemption does not apply to every instrument recorded as part of the organization of a new corporation, only to deeds conveying real estate to the newly organized corporation. Therefore a deed of trust securing a note made as part of the transaction is not exempt from recordation.
Accordingly the tax imposed by § 58.1-803 should have been collected upon recordation of the deed of trust.
W. H. Forst
Tax Commissioner
Dear ****
This is in response to your letter of April 18, 1985 requesting a ruling on the taxability of a deed of trust recently presented to you for recordation. I apologize for the delay in my response.
The deed of trust is one of four instruments, none of which contain anything on the face of the instrument to indicate that it is exempt from tax. However, additional information indicates that two of the instruments are exempt under § 58.1-811 A.6. because they are deeds conveying property to a corporation upon its organization by persons in control of the corporation in a transaction which qualifies for nonrecognition of gain or loss pursuant to § 351 of the Internal Revenue Code. Another instrument is exempt under § 58.1-811 A.10. because it is a deed conveying property to a partnership and the grantor (one of the newly organized corporations) is entitled to receive not less than 50% of the profits and surplus of the partnership.
The instrument in question is a purchase money deed of trust from one of the newly organized corporations which conveys the property it received in one of the above deeds to trustees to secure a note. No information on the note has been provided except that it is part of the transaction on which no gain or loss will be recognized pursuant to § 351 I.R.C.
It appears that the individuals involved have conveyed property to a corporation in exchange for stock of the corporation and a note secured by the deed of trust in question. Because this transaction qualifies for nonrecognition under § 351 I.R.C. and took place upon organization of the corporation, the deed conveying the property to the corporation is clearly exempt from recordation tax under § 58.1-811 A.6. However, the deed of trust securing the note is not exempt even though it is part of the transaction described in § 58.1 811 A.6.
§ 58.1-811 A.6. sets out a three pronged test for a conveyance to be exempt from state recordation tax. See an opinion dated September 30, 1977 found in the Report of the Attorney General, 1977-1978, at page 439 (copy enclosed). The exemption does not apply to every instrument recorded as part of the organization of a new corporation, only to deeds conveying real estate to the newly organized corporation. Therefore a deed of trust securing a note made as part of the transaction is not exempt from recordation.
Accordingly the tax imposed by § 58.1-803 should have been collected upon recordation of the deed of trust.
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner