Tax Type
Recordation Tax
Description
Related and Contingent Deed of Trust
Topic
Payment and Refund
Taxpayers' Remedies
Date Issued
05-29-1991
May 29, 1991
Re: §58.1-1821 Application; Recordation Tax
Dear****************
This will reply to your letter of June 14, 1990, in which you seek a refund of recordation taxes on behalf of ************** (the "Taxpayer").
FACTS
The taxpayer, a limited partnership, secured a loan from a bank to pay obligations under a construction and contribution agreement. The loan was secured by a deed of trust (the first deed of trust), which was recorded and recordation taxes paid. A second deed of trust was executed by the taxpayer for the benefit of another party (the second limited partnership) under the same construction and contribution agreement, whereby the taxpayer agreed to reimburse the second limited partnership for costs it incurred in constructing improvements on land owned by the taxpayer. This second deed of trust was recorded and recordation taxes paid. It is the taxes paid on this second deed of trust for which the taxpayer seeks a refund.
You contend that the second deed of trust is supplemental to the first deed of trust, and that it is contingent upon certain failures under the first deed of trust. Because the monies secured under the second deed of trust are the same monies secured under the first deed of trust, there is no additional obligation. Therefore, no recordation taxes are due on the second deed of trust because all recordation taxes were paid in full for the first deed of trust.
DETERMINATION
The recordation tax is based on the privilege of being allowed to avail oneself of the benefits and advantages of the registration laws of the State. In this case, two different parties have exercised that privilege to record two separate documents securing obligations. It is undisputed that the first deed of trust was properly taxed. The second deed of trust must also be taxed unless it qualifies for an exemption. There is no exemption for a deed of trust merely because the obligation secured is contingent, or because it is related to other recorded documents. There is, however, an exemption for a document that is supplemental to another recorded and taxed document.
Under Va. Code §58.1-803(c), recordation tax on a supplemental deed of trust is due only on the portion of the obligation secured which is in addition to the amount of the existing debt secured by a deed of trust on which tax has been paid.
The Code of Virginia does not define "supplemental." The ordinary meaning of the term is "that which is added to a thing to complete it." Black's Law Dictionary 1290 (5th Ed. 1979). Measured by this definition, the second deed of trust does not appear to be supplemental to the first deed of trust. The second deed of trust is not added to the first to complete it; the first deed of trust secures an obligation under its terms and is complete without the addition of the second deed of trust. The second deed of trust addresses a separate obligation between two different parties. Thus, even though the two documents are linked, one contingent upon the other, they are two different deeds of trust, each with different parties, and each with a separate and distinct obligation to secure repayment of a debt. Therefore, the recording of each document is subject to the recordation tax.
As you requested, a member of my staff contacted the clerk of the circuit court where the documents were recorded to discuss his position regarding your claim. The clerk stated that he did not oppose a review of the situation to determine if a refund was appropriate; however, he has never taken a position favorable to the taxpayer. In fact, the clerk maintains that the two deeds of trust are taxable because there are no applicable exceptions to taxation. The department agrees.
Accordingly, the request for refund is denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner