Tax Type
Recordation Tax
Description
Federal Land Credit Associations and the Virginia Recordation Tax
Topic
Credits
Exemptions
Date Issued
05-01-2013
May 1, 2013
Re: Ruling Request: Federal Land Credit Associations and the Virginia Recordation Tax
Dear *****:
This is in response to your letter, dated August 21, 2012, requesting a ruling addressing whether the portion of your business that is conducted through a federally-chartered federal land credit association is exempt from Virginia's Recordation Tax.
FACTS
***** ("FLCA") is a subsidiary of ***** ("ACA") and a federally-chartered, federal land credit association. As a federal land credit association, FLCA is a federal land bank association with the authority to make and participate in long-term real estate mortgage loans. Through FLCA, ACA provides credit and financial services to farmers and rural residents of Virginia.
On July 25, 2012, ACA submitted a deed of trust on behalf of FLCA in ***** ("the County") securing a loan made by FLCA. On submission of the deed of trust, the Virginia Recordation Tax was not paid because ACA claimed that a federal statute exempted the deed from the tax. The deed of trust was rejected from recordation by the County Circuit Court Clerk's Office because it did not cite a Virginia code section exempting the deed from the Recordation Tax. FLCA then paid the Recordation Tax under protest.
FLCA contends that it has demonstrated that the deed of trust is exempt from the Virginia Recordation Tax under federal law.
DETERMINATION
Va. Code § 58.1-803 imposes a Recordation Tax on deeds of trust or mortgages at a rate of 25 cents on every $100 or portion thereof of the amount of bonds or other obligations secured thereby.
Va. Code § 17.1-223 A grants county clerks the authority to reject any writing for filing or recordation unless the Virginia Code section under which an exemption from recordation taxes is claimed is clearly stated on the face of the writing. However, this cannot be used to ignore any federal law that creates an exemption from recordation taxes.
Under 12 U.S.C. § 2098, federal land bank associations are exempt from federal, state, municipal and local taxation, except taxes on real estate held by a federal land bank association to the same extent, according to its value, as other similar property held by other persons is taxed. Further, mortgages held by federal land bank associations and other obligations issued by the associations are instrumentalities of the United States and are exempt from all federal, state, municipal and local taxation.
In 2003 Op. Va. Att'y Gen. 177 (No. 03-047, June 26, 2003), the Virginia Attorney General determined that 12 U.S.C. § 2098 exempted federal land credit associations from federal, state or local taxation. Recently, this opinion has been questioned because courts in Michigan and the District of Columbia have ruled on an issue similar to the present case regarding state and local transfer taxes and the tax-exempt status granted to the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") by the United States Congress.
Under 12 U.S.C. §§ 1723a(c)(2) and 1452(e), Fannie Mae and Freddie Mac are exempt from all federal, state and local taxes, except for taxes on their real property, when they are parties to a transaction. Under the Supremacy Clause of the United States Constitution, Virginia must honor federal laws exempting such entities from taxation. See Gibbons v. Ogden, 22 U.S. 1, 211 (1824). In Va. Att'y Gen. Op. No. 2012-038 (November 1, 2012), the Virginia Attorney General determined that Virginia's Recordation Tax is not a tax upon real property, but is a tax upon the privilege of using Virginia's registration laws and, therefore, Fannie Mae and Freddie Mac are not subject to Virginia's Recordation Tax when they are parties to a transaction. This Opinion specifically states that "when a federal statute prohibits all state or local taxation on an entity created by the federal government, except for taxation on that entity's real estate, the entity enjoys an exemption from the recordation tax whenever it is a principal to the transaction."
The November 1, 2012 Attorney General Opinion exempted Fannie Mae and Freddie Mac from Virginia's Recordation Tax, but did not exempt every party to the transaction. In 2002 Op. Va. Att'y Gen. 328 (No. 02-057, August 13, 2002), the Virginia Attorney General stated that, "the mere fact that the federal government is involved in some capacity, either as guarantor or beneficiary, does not exempt a transaction from the recordation tax." For example, Fannie Mae and Freddie Mac are exempt from the Grantors' Tax if they sell property they acquired in foreclosure, but the purchasers would not be exempt from the Recordation Tax. Conversely, if Fannie Mae and Freddie Mac acquire property at foreclosure sale, no Recordation Tax may be imposed on them, but the Grantors' Tax could be charged to the debtor. Further, because Fannie Mae and Freddie Mac do not lend directly to consumers, but merely guarantee loans, the typical deed of trust is not exempt. See 1993 Op. Va. Att'y Gen. 260.
In the present case, FLCA is a federally-chartered federal land credit association and a federal land bank association. Like Fannie Mae and Freddie Mac, Congress has used almost identical language to exempt FLCA from all state, municipal and local taxes, except for taxes on its real property. Because Virginia's Recordation Tax is not a tax on real property, and because FLCA is a party to the transaction, the deed of trust securing the loan made by FLCA is exempt from Virginia's Recordation Tax and ACA is entitled to a refund of the recordation taxes paid for the deed of trust.
CONCLUSION
Based on the forgoing, the deed of trust securing the loan made by FLCA is not subject to Virginia's Recordation Tax. The Department will refund the appropriate amount of state Recordation Tax. The Department will send a copy of this letter to the Clerk of the County and a refund of the local Recordation Tax will be issued by the County. The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. The Virginia Attorney General opinions cited are available online at http://www.oaq.state.va.us in the Opinions and Legal Resources section of the Virginia Attorney General's website. If you have additional questions, please contact ***** in the Office of Tax Policy, Policy Development Division, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
Craig M. Burns
Tax Commissioner
PD/1-5166885803
Rulings of the Tax Commissioner