April 15, 2015
Re: § 58.1-1821 Application: Recordation Tax
Dear *****:
This will reply to your letter in which you request a refund of the state and local recordation taxes paid by ***** (the "Taxpayer") for recording a deed of trust.
FACTS
In October 2012, the Taxpayer recorded a credit line deed of trust in the ***** (the "County") paying a recordation tax based on the secured value of the loan. In September 2014, the Taxpayer filed a supplement to the original deed of trust that increased the amount secured by the loan from $50.4 million to $65 million. The County based the recordation tax on the difference between the existing balance of the loan, which was $35.4 million, and the $65 million secured by the loan using the rates applicable for new deeds of trust. The Taxpayer appeals, contending that the County did not apply the recordation tax in accordance with the graduated rate schedule.
DETERMINATION
Virginia Code § 58.1-803 C provides the following:
On deeds of trust or mortgages which are supplemental to or wrap around existing deeds of trust, or which modify the terms of an existing debt with the same lender, on which the tax imposed hereunder has already been paid, the tax shall be paid only on that portion of the face amount of the bond or obligation secured thereby which is in addition to the amount of the existing debt secured by a deed of trust or mortgage on which tax has been paid.
As such, the recordation tax on a supplemental deed of trust is based on the difference between the existing debt and the face value of the supplemental instrument. The amount secured on the face of the modification was $65 million. The existing debt at the time of the modification was $35.4 million. Therefore, recordation tax should be imposed on the $29.6 million difference.
Pursuant to Virginia Code § 58.1-803 E the maximum tax for the recordation of any deed of trust is as follows:
On the first $10 million of value as determined pursuant to this section, 25 cents ($0.25) upon every $100 or portion thereof;
On the next $10 million of value as determined pursuant to this section, 22 cents ($0.22) upon every $100 or portion thereof;
On the next $10 million of value as determined pursuant to this section, 19 cents ($0.19) upon every $100 or portion thereof;
On the next $10 million of value as determined pursuant to this section, 16 cents ($0.16) upon every $100 or portion thereof; and
On all over $40 million of value as determined pursuant to this section, 13 cents ($0.13) upon every $100 or portion thereof.
The County calculated the recordation tax on the $29.6 million increase by starting at the first rate bracket. As such, it applied the $0.25 rate to the first $10 million, the $0.22 rate to the second $10 million, and the $0.19 rate to the remaining balance. The Taxpayer argues that because the tax is based on the increase between the $35.4 million and $65 million, rates should have been applied as if the $35.4 million was included in the computation.
In 1987-1988 Op. Va. Att'y Gen. 282, the Attorney General opined that the rates the recordation tax on supplanted or wrap around deeds of trust should be paid only on the additional amount of the existing debt secured because tax had already been paid on the original amount secured. Therefore, the total recordation tax to be paid for both the original and supplemental recording is the same tax which would be due if the total debt was secured by a single instrument.
Based on the Attorney General's opinion, $4.6 million of loan secured in the supplemental deed of trust should be taxed at the $0.16 rate and the remaining $25 million of the amount secured should be taxed at the $0.13 rate. Accordingly, the recordation tax due on the supplemental deed of trust will be adjusted in accordance with the attached schedule. 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 Circuit Court and a refund of the local recordation tax will be issued by the County.
The Code of Virginia sections, and the attorney general opinion cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig Burns
Tax Commissioner
AR/1-5857066876.B