Bulk purchase of noncontiguous parcels
Documents Subject to Tax
November 10, 1988
Re: §58.1-1821 Application; Recordation Tax
§58.1-801 Tax on Deeds
Consideration or actual value
This is in response to your letter of August 9, 1988, in which you applied for correction of assessments of state recordation tax by the clerks of several circuit courts. The application also involves the local recordation tax authorized by §58.1-3800, which is one of the taxes administered by the department.
The taxpayer purchased many tracts of land located in numerous Virginia counties and negotiated the sales price on the basis of a lump sum for all of the tracts. For convenience each subsidiary of the seller prepared separate deeds on a county by county basis for the property it held. When the deeds were presented to the clerks for recordation the total consideration was apportioned among the deeds (i.e., among the subsidiaries and among the counties).
In three of the localities the clerks noted that the assessed value of the tracts in their jurisdictions was significantly greater than the consideration reported. They assessed (or plan to assess) the state and local recordation taxes under §§58.1-801 and 58.1-3800 based on the assessed value instead of the portion of the lump sum sales price reported to them.
For the purpose of this ruling I will assume, without deciding, that the lump sum purchase price is a "fair market value" for the entire acreage transferred in this transaction and that the total consideration for the transaction was properly apportioned among the several deeds. (A companion letter involving the grantor's tax assessed in this transaction indicates that the total consideration may not have been properly apportioned.)
The primary issue in this application is the definition of "actual value of the property conveyed" as the term is used in §58.1-801. In most cases the "actual value" is synonymous with the "fair market value" of property. However, in this case there are two "fair market values" to consider: the contract price, which is a lump sum purchase price for all of the acreage, and the sum of the fair market values of each separate parcel.
It appears that the contract price (or consideration) is much less than the sum of the fair market values of each tract if sold separately. Therefore, if "actual value of the property conveyed" is based on the fair market value of each separate tract it will greatly exceed the consideration, and the recordation tax will be based on the actual value.
The term "fair market value" implies a negotiated value between buyer and seller in an open market. The term "actual value" implies an objective value. In this case, it appears that the negotiated lump sum purchase price reflects a discount due to factors such as:
- _ a bulk transfer; and
_ the fact the property conveyed consists of widely scattered parcels instead of contiguous parcels.
- _ a bulk transfer; and
For the reasons stated, I conclude that the clerks properly determined that the consideration reported to them did not reflect the actual value of the property conveyed and that they properly sought to assess the state and local recordation tax on the actual value. The only issue remaining is the amount of the actual value determined by the clerks.
The determination of the actual value of the property conveyed is the responsibility of the clerk who has the authority to require acceptable affidavits or other evidence under §58.1-812. In this case it appears that the clerks used, or proposed to use, the assessed value for property tax purposes. Since §58.1-3201 requires all assessments of real estate for purposes of local property taxation to be made at 100% of fair market value, it is reasonable for a clerk to presume that a recent assessment reflects the actual value of the property. Where the clerk has reason to believe that the assessed value does not reflect the actual value (e.g., the assessment is not recent), the clerk should seek other evidence of the actual value. one accepted method is to convert the assessed value into the actual value by multiplying the assessed value by the reciprocal of the median sales ratio for the category of property being conveyed. Enclosed is a copy of a May 30, 1978, memorandum from the Auditor of Public Accounts explaining this procedure.
Accordingly, the assessments of recordation taxes under §§58.1-801 and 58.1-3800 which were made or proposed by the clerks of the Chesterfield, Prince George and Surry County Circuit Courts are correct in so far as the assessments are based on the sum of the actual values of each parcel conveyed instead of the consideration. The department expresses no opinion as to the amount of the actual value of any parcel determined by the clerks.
Although you requested a conference, this letter has been issued without one because the application of the law is clear. If you still desire a conference you should request one within thirty days.
W. H. Forst