Tax Type
Recordation Tax
Description
Transfer in Bankruptcy
Topic
Documents Subject to Tax
Date Issued
12-20-1989
December 20, 1989
Re: §58.1-803 Deed of Trust, Recordation Tax
Dear***************
This is in response to your letter of May 22, 1989 in which you inquired as to whether or not the exemption from state and local recordation tax under 11 U.S.C.A. §1146(c) extends to a deed of trust granted by the purchaser of property from a bankrupt debtor.
Facts
The Taxpayer requests a refund of state and local recordation taxes paid upon recording a deed of trust. The Taxpayer purchased property from the debtor pursuant to a sale confirmed by the U. S. Bankruptcy Court. To obtain financing for the purchase, the Taxpayer executed a deed of trust with a financial institution, secured by the property purchased from the debtor. The Taxpayer claims that the recordation of the deed of trust is exempt from all state and local recordation taxes under 11 U.S.C.A. §1146(c).
Discussion
Section 58.1-803 of the Virginia Code imposes a tax on the recording of a deed of trust. Under 11 U.S.C.A. §1146(c), transfers of property pursuant to a plan confirmed under §1129 of Title 11 may not be taxed under any law imposing a stamp or similar tax, which includes a recordation tax.
In P.D. 88-271 (copy enclosed) it was held that the federal exemption under 11 U.S.C.A. §1146(c) "applies to the transfer and all documents to implement the transfer, not merely to the bankrupt party." [Emphasis added]. The question is, does the phrase "all documents to implement the transfer" encompass a deed of trust between the purchaser of the property and a financial institution to obtain financing for the purchase.
The order of the bankruptcy court confirming the sale stated that the sale of the debtor's real property "is hereby ratified, confirmed and approved as per the terms of the said settlement sheet." The settlement sheet listed under Summary of Borrower's Transaction, line 202. "Principal amount of new loan(s)***** (the amount of the deed of trust). By confirming the sale as per the terms of the settlement sheet, the court implicitly confirmed this item, which represents the financing of the sale. The financing, obtained in this case through a deed of trust. was confirmed as part of the sale. Consequently, the deed of trust was entitled to an exemption from the recordation tax under 1116(c) as a document to implement the transfer.
Determination
Accordingly. the assessment was incorrect and the taxes paid should be refunded, assuming the deed and the deed of trust arc properly recorded, citing the code section granting the exemption. as required by Va. Code §17-59. As you pointed out in. your letter, the clerk's fee of $50.00 should not be refunded.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner