Tax Type
Recordation Tax
Description
Contracts and Deeds of Lease
Topic
Documents Subject to Tax
Date Issued
06-29-1988
June 29, 1988
Re: Request for Ruling; Recordation Tax
§58.1-007 Consideration for Lease
Dear**************
This is in response to your letter of March 9, 1988, in which you requested a ruling on recordation tax. I apologize for the delay in responding.
You request a ruling whether, for purposes of Va. Code §58.1-807, the "consideration or value contracted for" in a lease is calculated by multiplying the rental times the original term of the lease or, alternatively, by the remaining term of the lease at the date of its recording.
Discussion
When a contract relating to real estate is recorded, paragraph A. of §58.1-807 imposes a tax on the "consideration or value contracted for." Leases usually contain express statements of the rental and term of the lease from which the clerk can compute the taxable "consideration or value contracted for." (However, stated consideration is not determinative because §58.1-812 directs the clerk to investigate and determine the true consideration or actual value related to the recordation of taxable instruments.)
When recordation is delayed, a question arises as to whether the tax should be based on facts as of the date of recordation or as of some earlier date. None of the sections imposing a tax on recordation of various instruments refer to a value as of the date of recordation. In the case of each instrument on which a tax is imposed the tax is measured by the value of property or rights conveyed or created by the instrument. Under Virginia law recordation is a voluntary act, it is not required to make a deed, lease, or contract effective between the parties. Therefore, the taxable "consideration or value contracted for," is determined as of the date a lease became effective between the lessor and the lessee, i.e., the date that both the lessor and lessee are bound by its terms. See an Opinion of the Attorney General to the Honorable Ronald P. Livingston dated July 6, 1987, (copy enclosed) opining that the actual value of real estate conveyed is determined as of the date a deed is effective under Virginia law.
A second issue raised by your question relates to paragraph B. of §58.1-807 which limits the measure of the tax to the actual value of the property leased, as of the date of the lease. In order to determine if this limitation applies the two values must be compared as of the same date. In other words, the actual value as of the date of the lease must be compared to the annual rental multiplied by the original term of the lease.
Determination
Accordingly, I am of the opinion that the "consideration or value contracted for" in a lease should be computed with reference to the original term of the lease, not the term remaining when the lease is recorded.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner