Tax Type
Recordation Tax
Description
Deeds of trust; Amount secured in excess of $10 million
Topic
Computation of Tax
Documents Subject to Tax
Date Issued
07-07-1987
July 7, 1987
Re: §58.1-803 Recordation Tax; Deeds of Trust
Amount Secured in Excess of $10 Million
Dear ********************
This is in response to your letter dated April 9, 1987, in which you applied for correction of an assessment of state recordation tax. The disputed tax was collected by the clerk of court on recordation of a deed of trust which secured additional indebtedness as part of the refinancing of an existing debt.
Facts
As part of a transaction which increased an existing line of credit, a deed of trust was recorded in three jurisdictions. The deed of trust contains recitals which state that the deed of trust ". . . is part of a refinancing of an existing debt with the same lender," identifies the previously recorded deeds of trust, states the amount of existing debt, and states the amount of additional indebtedness secured.
It appears that one deed of trust was recorded in two jurisdictions and a duplicate was recorded in the third jurisdiction. Although two documents were recorded, they are counterparts of a single instrument and taxed as if a single document had been recorded in all three jurisdictions.
The total indebtedness, as refinanced, is greater than $10 Million, but the additional indebtedness secured by the deed in trust is less than $10 Million. The clerk computed the state recordation tax at $0.15/100 on the entire amount of the additional indebtedness without using the reduced rates set forth in §58.1-803 E. for amounts over $10 Million.
Determination
The relevant portion of §58.1-803 is set out below:
-
- D. 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. The instrument shall certify the amount of existing debt.
E. The maximum tax on the recordation of any deed of trust or mortgage or on any indenture supplemental thereto shall be determined in accordance with the following schedule: (Schedule omitted.)
- D. 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. The instrument shall certify the amount of existing debt.
Subsection E. refers to a "maximum tax on the recordation." Therefore the reduced rates apply only if the amount secured by the instrument recorded exceeds $10 Million. Since subsection D. provides that the tax is imposed on only the additional indebtedness secured by the instrument, which in this case is less than $10 Million, the reduced rates in the subsection E. do not apply to the deed in trust in question.
In reviewing the computation of the state and local recordation tax it appears that two errors were made. Due to what appears to be a mathematical error, the state tax was overcollected by $15.00. Since the clerks of the court are required to forward all state taxes to the state treasurer at the end of the month, you will shortly receive a refund of the $15.00 in state tax.
Since the local tax is based on the state tax it is also overstated by $5.00. However, an application must be made to each locality to receive a refund of the local tax collected by the locality.
Examination of the receipts and documents discloses that the local tax was also overstated due to the method used to compute the tax. The computation apportioned one-third of the state tax among the two localities which imposed a local tax. The numerator of the apportionment fraction was the value of real estate within each locality, and the denominator was the value of all real estate conveyed excluding the value of property located in the jurisdiction which did not impose a tax.
The exclusion of untaxed values from the denominator has the effect of increasing the tax in the remaining jurisdictions so that the total local tax imposed equals the maximum allowed for all jurisdictions under §58.1-3800 (i.e., one-third of the state tax).
However, under §58.1-3801 the local tax on a deed which "relates to property located partially within such city or county shall be computed only with respect to that portion of the property located in such city or county." The exclusion of untaxed values means that the tax in one locality depends not only on the portion of the real estate located within the city or county, but also on whether or not a tax is imposed with respect to real estate located in other jurisdictions. Therefore, this method of computing the local recordation tax violates the requirement in §58.1-3801 that the local tax be computed only with respect to the portion of the property located in the city or county.
Accordingly, the clerk applied the correct rate when computing the state recordation tax. You will shortly receive a refund of $15.00 in state tax which appears to have been over collected due to a mathematical error (see attached sheet for the computation). If you desire a refund of local recordation tax you must apply to the treasurer of each of the localities involved.
Sincerely,
W. H. Forst
Tax Commissioner
Attachment
Rulings of the Tax Commissioner