When Habitat for Humanity sells a house to a low-income family, does the buyer have to pay Virginia's recordation tax?

Plain-English summary

Michele McQuigg, Clerk of the Prince William County Circuit Court, was seeing Habitat for Humanity deeds come across her desk and getting conflicting advice on who, if anyone, owed Virginia's recordation tax. Was it the grantor (Habitat), the grantee (the home buyer), both, or neither? She asked the AG.

The AG: neither.

The statutory setup. Va. Code § 58.1-801 imposes a state recordation tax of 25 cents per $100 on every deed admitted to record "except a deed exempt from taxation by law." Section 58.1-807 imposes a parallel tax on contracts and leases. These are often called the "grantee's tax" because the grantee typically pays them at recordation.

Section 58.1-811(A) lists exemptions. Subsection (A)(14) exempts:

any deed conveying real estate or lease of real estate ... [w]hen the grantor is an organization exempt from taxation under § 501(c)(3) of the Internal Revenue Code that is organized and operated primarily to acquire land and purchase materials to erect or rehabilitate low-cost homes on such land, which homes are sold at cost to persons who otherwise would be unable to afford to buy a home through conventional means.

That language fits Habitat for Humanity directly: it acquires land, uses donated and volunteer-built materials, builds low-cost homes, and sells them at cost (zero-profit, often zero-interest) to families who would not otherwise qualify for conventional financing.

The key insight: the tax falls on the transaction, not on a party. Recordation taxes are imposed on the act of recording, not on the grantor or grantee individually. When the recording itself is exempt, neither party owes the tax. The opinion notes (in footnote 9) that this is so even when the legal incidence of the tax is statutorily prescribed: the grantor's tax in § 58.1-802 is imposed on the act of recording, despite being denominated a "grantor's tax." The economic burden may shift between parties depending on contract, but the legal exemption attaches to the recording.

Who decides if an organization qualifies? The Clerk of Court, as the local taxing official. The AG cites prior opinions establishing that whether a specific organization meets the eligibility criteria of § 58.1-811 is a question of fact for the Clerk to resolve, including (where appropriate) by requiring documentation. So Habitat's affiliate-level operations must be verified against the statutory criteria each time, even though the general pattern is well-known.

Why this matters in practice. The recordation tax can be the difference between a Habitat family being able to close on their home and not. On a $100,000 home, the state recordation tax alone would be $250, plus local recordation tax. Low-income buyers often have no margin for unexpected closing costs. The exemption removes a real obstacle to the charitable purpose Habitat exists to serve.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Section 58.1-811 has been amended several times, with new exemptions added and existing ones tweaked. Habitat affiliates and similar low-cost housing nonprofits should confirm the current text of subsection (A)(14) and confirm with the Clerk of Court in the relevant locality before relying on the exemption.

Common questions

Does this exemption only apply to Habitat for Humanity?
No. The exemption is written generically: it applies to any 501(c)(3) organized and operated primarily to acquire land and build or rehabilitate low-cost homes sold at cost to people who could not otherwise afford to buy. Habitat is the most prominent example, but other qualifying nonprofits also benefit.

What if the organization is a 501(c)(3) but does other things too?
The statute says "organized and operated primarily" for the qualifying purpose. An organization that mainly does the qualifying activity but also engages in unrelated activities can still qualify, but the Clerk has to make the factual determination.

Does the exemption cover the local recordation tax too?
The exemption in § 58.1-811(A)(14) covers the state taxes imposed by §§ 58.1-801 and 58.1-807. Local recordation taxes (the so-called "grantee's tax" at the locality level, often equal to one-third of the state tax) may also be exempt by parallel local exemption or by piggyback. Check the specific locality's ordinance.

Does the buyer still pay any closing costs?
Yes. The exemption is only for the recordation tax. Buyers still owe title insurance, settlement fees, escrow charges, and other typical closing items. Some Habitat affiliates absorb or defer many of these costs as part of the program.

What if the home is later sold to a market-rate buyer?
The exemption applies only to the initial conveyance from the qualifying nonprofit to the qualifying buyer. A later resale by the family to a market-rate buyer is taxable as an ordinary transaction.

Does Habitat's land acquisition qualify too?
Yes. Section 58.1-811 has separate provisions for various other transaction types. The general principle is that deeds where the qualifying nonprofit is the grantor are exempt. When the nonprofit is the grantee (buying land to develop), a different exemption may apply (or the tax may apply normally, depending on the specifics).

What documentation should the nonprofit be prepared to provide?
The Clerk may request: IRS Form 1023 determination letter confirming 501(c)(3) status, organizational documents showing the mission, an attorney's letter confirming eligibility under § 58.1-811(A)(14), and program documentation showing sales are at cost to qualifying buyers.

What happens if a Clerk wrongly denies the exemption?
The party paying the tax can pursue refund procedures (administrative or judicial correction under Title 58.1, Chapter 39). The AG opinion is non-binding but persuasive; clerks who are inconsistent with it create risk for the locality.

Background and statutory framework

• Va. Code §§ 58.1-800 to 58.1-817: Virginia Recordation Tax Act.
• Va. Code § 58.1-801: state recordation tax of 25 cents per $100 on every deed admitted to record (except deeds exempt by law).
• Va. Code § 58.1-802: state grantor's tax.
• Va. Code § 58.1-807: tax on contracts and leases.
• Va. Code § 58.1-811(A)(14): exemption for low-cost housing nonprofits as grantor.
• 23 Va. Admin. Code § 10-320-30(C): regulatory treatment of recordation tax incidence.
• Pocahontas doctrine: recordation taxes are on the privilege of using the recording system, not on persons.

The interpretive moves:

• Plain meaning of § 58.1-811(A)(14) controls; statute speaks for itself.
• Exemption attaches to the transaction; the question of who pays is structurally moot.
• Factual qualification of the organization is for the Clerk to determine.

Citations

• Va. Code § 58.1-801
• Va. Code § 58.1-807
• Va. Code § 58.1-811
• Federal Land Bank v. Hubard, 163 Va. 860, 178 S.E. 16 (1935)
• Pocahontas Consol. Collieries Co., Inc. v. Commonwealth, 113 Va. 108, 73 S.E. 446 (1912)
• Kozmina v. Commonwealth, 281 Va. 347, 706 S.E.2d 860 (2011)
• 1990 Op. Va. Att'y Gen. 255
• 1992 Op. Va. Att'y Gen. 185
• 1984-85 Op. Va. Att'y Gen. 391
• Va. Tax Comm'r Priv. Ltr. Rul., Pub. Doc. 92-234 (Nov. 9, 1992)
• Va. Tax Comm'r Priv. Ltr. Rul., Pub. Doc. 95-146 (June 9, 1995)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2014/13-077_McQuigg.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Richmond 23219

900 East Main Street
Richmond, Virginia 23219
804-786-2071
804-371-8946 TDD

March 14, 2014

The Honorable Michele B. McQuigg
Clerk of the Circuit Court of Prince William County
9311 Lee Avenue
Manassas, Virginia 20110

Dear Ms. McQuigg:

I am responding to your request for an official advisory Opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether the exemption provided by § 58.1-811(A)(14) to the recordation taxes imposed by §§ 58.1-801 and 58.1-807 is available to the grantor, to the grantee, or to both, when the grantor of the deed or contract filed for recording is an organization that meets the criteria set forth in § 58.1-811(A)(14).

Response

It is my opinion that, so long as the grantor is an organization that meets the criteria set forth in § 58.1-811(A)(14), a deed or contract offered for recording is exempt from the taxes enumerated in §§ 58.1-801 and 58.1-807, and neither the grantee nor the grantor is required to pay those taxes.

Background

You advise that your office routinely receives filings for deeds on properties where the grantor is Habitat for Humanity, a nonprofit organization, the stated mission of which is to build and repair houses using volunteer labor and donations, and then to sell those houses without profit to families in need of shelter, using innovative financing mechanisms. You also relate that, based on § 58.1-811(A)(14), various parties maintain the following divergent views regarding these filings:

1) Both the grantor and grantee are exempt from the taxes enumerated in §§ 58.1-801 and 58.1-807.
2) The grantor is exempt, but the grantee is not exempt from the taxes enumerated in §§ 58.1-801 and 58.1-807.
3) The grantor is not exempt, but the grantee is exempt from the taxes enumerated in §§ 58.1-801 and 58.1-807.
4) Neither party is exempt from the taxes enumerated in §§ 58.1-801 and 58.1-807.

Applicable Law and Discussion

The Virginia Recordation Tax Act (the "Act") requires Circuit Court Clerks in Virginia to collect certain recordation taxes.[1] These taxes are based on the privilege of having access to the benefits of state recording and registration laws.[2] Your inquiry specifically concerns the recordation tax imposed on deeds. The Act in § 58.1-801 provides:

On every deed admitted to record, except a deed exempt from taxation by law, there is hereby levied a state recordation tax. The rate of the tax shall be 25 cents on every $100 or fraction thereof of the consideration of the deed or the actual value of the property conveyed, whichever is greater.[3]

This recordation tax is sometimes referred to as a "grantee's tax," as it is generally paid by the grantee of a deed at the time of recordation.[4]

You also request guidance on the tax on the recordation of contracts and leases relating to real or personal property. The Act in § 58.1-807 provides:

Except as hereinafter provided, on every contract or memorandum thereof relating to real or personal property admitted to record, a recordation tax is hereby levied at the rate of 25 cents on every $100 or fraction thereof of the consideration or value contracted for.[5]

There are numerous exemptions to these taxes. Pertinent to your inquiry, the General Assembly has provided in § 58.1-811(A)(14) that:

[t]he taxes imposed by §§ 58.1-801 and 58.1-807 shall not apply to any deed conveying real estate or lease of real estate ... [w]hen the grantor is an organization exempt from taxation under § 501(c)(3) of the Internal Revenue Code that is organized and operated primarily to acquire land and purchase materials to erect or rehabilitate low-cost homes on such land, which homes are sold at cost to persons who otherwise would be unable to afford to buy a home through conventional means.[6]

"When the language of a statute is unambiguous, we are bound by the plain meaning of that language."[7] The clear and unambiguous language of § 58.1-811(A)(14) evidences that, so long as the grantor is an entity described therein,[8] the taxes imposed by §§ 58.1-801 and 58.1-807 do not apply to the recordation of any deed or lease conveying real estate. In that circumstance, neither the grantee nor the grantor is required to pay these two particular taxes.[9] Conversely, I conclude that if the grantor is not such an entity, then the statutory tax exemption is inapplicable to the recordation.

Conclusion

Accordingly, it is my opinion that, so long as the grantor is an organization that meets the criteria set forth in § 58.1-811(A)(14), a deed or contract offered for recording is exempt from the taxes enumerated in §§ 58.1-801 and 58.1-807, and neither the grantee nor the grantor is required to pay those taxes.

With kindest regards, I am

Very truly yours,

Mark R. Herring
Attorney General

[1] See VA. CODE ANN. §§ 58.1-800 through 58.1-817 (2013).

[2] See Va. Tax Comm'r Priv. Ltr. Rul., Pub. Doc. 92-234 (Nov. 9, 1992). See also Pocahontas Consol. Collieries Co., Inc. v. Commonwealth, 113 Va. 108, 112, 73 S.E. 446, 448 (1912); Fed. Land Bank v. Hubard, 163 Va. 860, 864, 178 S.E. 16, 17 (1935).

[3] Section 58.1-801(A) (2013).

[4] See, e.g., Fed. Land Bank v. Hubard, 163 Va. 860, 864, 178 S.E. 16, 17 (1935); 1992 Op. Va. Att'y Gen. 185, 186-87; Va. Tax Comm'r Priv. Ltr. Rul., Pub. Doc. 95-146 (June 9, 1995).

[5] Section 58.1-807(A) (2013).

[6] Section 58.1-811(A)(14) (2013).

[7] Kozmina v. Commonwealth, 281 Va. 347, 349, 706 S.E.2d 860, 862 (2011) (quoting Conyers v. Martial Arts World of Richmond, Inc., 273 Va. 96, 104, 639 S.E.2d 174, 178 (2007)).

[8] Whether Habitat for Humanity is an organization meeting the eligibility criteria set forth in § 58.1-811(A)(14) is a factual determination that must be made by the Clerk of Court. See, e.g., 1990 Op. Va. Att'y Gen. 255, 257 (whether a university's land acquisition is "for educational purposes" and thus meets a recordation tax exemption under § 58.1-811(A)(1) is a question of fact that must be resolved by the Clerk as the local taxing official); 1984-85 Op. Va. Att'y Gen. 391, 392 (Clerk may require such documentation believed necessary to allow the Clerk to determine a partner's percentage participation in "profits and surplus" for purposes of verifying eligibility for the exemptions provided in § 58.1-811(A)(10) and (11)).

[9] It should be noted that recordation taxes are imposed on the act of recording an instrument, not on a particular party to the instrument. This is so even when the legal incidence of the tax is statutorily prescribed, as is the case with the grantor's tax imposed by § 58.1-802. See 23 VA. ADMIN. CODE § 10-320-30(C) (2013). When the grantor of the instrument is a qualifying organization meeting the eligibility criteria set forth in § 58.1-811(A)(14), the act of recording is exempt from taxation, regardless of who bears the economic burden of the tax.