93-34 | Virginia Tax

Tax Type

Recordation Tax

Description

Deeds of trust or mortgages; Refinancing debt with different lender

Topic

Rate of Tax

Date Issued

02-24-1993

February 24, 1993

Re: §58.1-1821 Application: Recordation Tax

Dear**********:

This will reply to letters of March 4, 1992 and July 2, 1992 written on your behalf by *******in which you (the "Taxpayer") seek a refund of recordation taxes.

FACTS

In December, 1991, the Taxpayer recorded a deed of trust in the Circuit Court of Alexandria to secure a loan on his property. Recordation taxes under Va. Code §58.1-803 were imposed and paid at the time of recording.

The Taxpayer has filed a claim for refund, contending that the deed of trust recorded in December, 1991 (the "second deed of trust") was to refinance an existing debt, which was previously recorded in a deed of trust with the appropriate recordation taxes paid in May, 1990.

DETERMINATION

Under Va. Code §58.1-803(D), a deed of trust to refinance or modify the terms of an existing debt will be taxed only on the portion of the debt in excess of the existing debt provided that:

- (1) the purpose of the deed of trust is to refinance or modify the terms of the existing debt;
  (2) the lender is the same;
  (3) the tax imposed under §58.1-803 was paid on the original deed of trust securing the debt; and
  (4) the instrument certifies the amount of the existing debt.

A review of the two deeds of trust reveals that the lender under the second deed of trust is different than the lender under the original deed of trust. You maintain that the lenders are actually divisions of the same company, and you have provided a letter from the company to support your position. However, the relationship of the two companies is unclear. The department's records indicate that the lenders under the two deeds of trust are separately incorporated and not divisions of a single entity. In an opinion dated March 10, 1992 (copy enclosed), the Attorney General concluded that the "same lender" referred to the time of refinancing, not the original loan. It is not clear if the refinancing lender had acquired ownership of the existing debt from the original lender. Based on the information available, the department is unable to determine if the two lenders are the same, as required under §58.1-803(D).

Even if the lenders are the same under the two deeds of trust, the second deed of trust falls short of satisfying all the requirements outlined above.

The second deed of trust made no reference to a refinancing agreement and did not certify the amount of the existing debt, as required under Va. Code §58.1-803(D). Furthermore under Va. Code §17-59 (copy enclosed), a taxpayer must clearly state on the face of the instrument to be recorded the code section granting an exemption from recordation tax; this was not done. Because the Taxpayer failed to satisfy these requirements, the second deed of trust did not qualify for the exemption set forth in Va. Code §58.1-803(D), and the recordation tax was properly imposed and paid.

Accordingly, based on the information in the recorded instruments, your request for refund is denied. If you can demonstrate that the refinancing lender is the "same lender" for the existing debt, you should record a corrected deed of trust that satisfies all of the requirements for the exemption. You may then request a refund of the state tax (with appropriate documentation) from the department. The locality would refund the local tax.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner