Tax Type
Recordation Tax
Description
Basis of recordation tax
Topic
Basis of Tax
Documents Subject to Tax
Date Issued
08-02-1991
August 2, 1991
Re: § 58.1-1821 Application; Recordation Tax
Dear*****************
This will reply to your letter of March 4, 1991, in which you seek a refund of state and county recordation taxes on behalf of************* (the "Taxpayer").
FACTS
On December 6, 1990, the taxpayer purchased property at a foreclosure sale. At the time the Trustee's Deed was recorded, the taxpayer presented two appraisal reports, done in mid-1990, as evidence of the actual value of the property. The clerk based the recordation tax on the most recent assessment made for real estate tax purposes, which was substantially higher than the appraised values presented by the taxpayer. Accordingly, recordation taxes were imposed on the assessed value in lieu of either the actual consideration or the appraised value.
The taxpayer is protesting the use of the assessed value as the basis for the recordation tax assessment and believes the appraisal reports are accurate indicators of the actual value of the property; therefore, the recordation tax should be based on the appraised value.
DETERMINATION
Va. Code § 58.1-801 imposes a state recordation tax of 15 cents on every $100 or fraction thereof of the consideration of the deed or the actual value of the property conveyed, whichever is greater. You concede that, in this case, the recordation tax should be based on the "actual value" of the property.
The term "actual value" is synonymous with "fair market value." The price paid at a foreclosure sale may not represent fair market value (FMV); an alternative for determining FMV must be found.
Prior opinions of the Attorney General and rulings of the department have found that the value at which property has been assessed for real property tax purposes may be used to determine FMV. See 1982 Att'y Gen. Rep. at 593, 1984 Att'y Gen. Rep. at 378, and P.D. 89-80 (2/23/89). These rulings were based on the fact that Art. X, 2 of the Constitution of Virginia and Va. Code 58.1-3201 require that real property be assessed at 100% of FMV.
While the assessed value is a valuable tool in determining the FMV or actual value, it is not controlling. See 1982 Att'y Gen. Rep. at 593. There are a number of reasons why the assessed value may not represent FMV:
- The recordation tax is measured by the actual value on the date the deed is delivered to the grantee from the grantor, while the assessed value is as of the preceding January 1. Thus, significant changes in the local market or in the property itself after January 1 would not be reflected in the assessed value. See 1987 Att'y Gen. Rep. at 572.
- The assessed values in the locality may be generally over or under the FMV because the locality may have used sales or other information for some substantial period prior to January 1. The department's sales assessment ratio study may be used to adjust for a general over or under assessment, but its use is not required. See 1982 Att'y Gen. Rep. at 593.
- The assessed value may be erroneous. In this case you indicate that actions are pending that challenge the accuracy of the 1989 and 1990 assessed values.
Placing a value on real estate is entirely a factual determination that is best made by one who is thoroughly familiar with the property itself and local market conditions. This responsibility lies with the clerk of the circuit court when the value is determined for recordation tax purposes. Because it appears that the clerk refused even to consider the taxpayer's appraisals as evidence of the current FMV, believing that he was required to use the assessed value, the clerk's determination of actual value for recordation tax purposes may have been erroneous. However, I am reluctant to overrule the clerk's valuation based on the evidence before me at this time. The fact that experts differ as to a property's value is not sufficient evidence as to which, if any, of the different values is the correct FMV on the date of the transaction. I note, for example, that the assessed value as of January 1, 1991 is much lower than the assessed value for 1990, but not as low as your appraisals.
By copy of this letter to the clerk, I am requesting him to review his determination of the actual value of the property taking into consideration your appraisals and any other relevant and reliable information available. If he advises me that he has determined that the FMV at the time of recordation was less than the assessed value, then the department would refund the appropriate amount of state recordation tax, and a refund of the local recordation tax could be obtained from the locality.
If, after his review, the clerk advises me that his original determination of the actual value is correct, you may resubmit your application to me for reconsideration with sufficient detailed information to show why your appraisals are more accurate than the assessed value.
Because the recordation tax has been paid, and may be affected by pending actions as to the 1990 assessed value, you may also want to consider filing a protective claim for refund pursuant to Va. Code § 58.1-1824. This procedure would allow the department to hold your protective claim without action until a final decision in the pending action.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner