Were both deeds in a construction-loan arrangement subject to South Carolina's deed recording fee?

Plain-English summary

South Carolina Revenue Ruling 05-8 concluded that both deeds in a home-construction financing arrangement were subject to the deed recording fee.

The homeowner first transferred land worth $22,000 to the builder because the lender required the builder to hold title for the construction loan. The promise to return the property after construction was consideration in money's worth, so the first deed was taxed on the land's fair market value. If its property-tax value was lower, § 12-24-30(C) allowed that value to be elected.

After building the home, the contractor transferred the property back to the homeowner in exchange for the $250,000 construction-contract payment. Because that consideration was money, the second deed was taxed on $250,000 rather than fair market value.

RR 17-5 later repeated this example in the Department's comprehensive deed-recording-fee guidance.

What this means for you

Homeowners and builders

A temporary title transfer used only to obtain construction financing was still a taxable transfer of realty under the ruling.

Closing professionals

Analyze each deed separately and determine whether its consideration is money, money's worth, assumed debt, or another value measure under § 12-24-30.

Common questions

Q: Why was the first deed taxable if no cash was paid?
A: The builder's promise to reconvey the completed property was consideration in money's worth.

Q: Why was the second deed based on $250,000?
A: That was the money paid or to be paid under the construction contract.

Q: Does the result cover every construction-loan arrangement?
A: No. The ruling states specific assumptions and facts; different liens, parties, trusts, values, or exemptions can change the analysis.

Citations and references

• S.C. Code Ann. § 12-24-10 — deed recording fee
• S.C. Code Ann. § 12-24-30 — value and property-tax-value election
• S.C. Code Ann. § 12-24-40 — exemptions
• SC Revenue Ruling #17-5 — later comprehensive deed-recording-fee guidance

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR05-8.pdf
• Later comprehensive guidance: RR17-5.pdf

Original ruling text

State of South Carolina
Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #05-8

SUBJECT:

Deeds to Obtain Construction Loans
(Deed Recording Fee)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

REFERENCES:

S. C. Code Ann. Section 12-24-10 (2000)
S. C. Code Ann. Section 12-24-30 (2000)
S. C. Code Ann. Section 12-24-40 (2000; Supp. 2003)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Section 1-23-10(4) (Supp. 2003)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to
the public and to Department personnel. It is a written
statement issued to apply principles of tax law to a specific
set of facts or a general category of taxpayers. A Revenue
Ruling does not have the force or effect of law, and is
not binding on the public. It is, however, the
Department’s position and is binding on agency personnel
until superseded or modified by a change in statute,
regulation, court decision, or advisory opinion.

Questions:

1. Is the deed that transfers realty from Mr. X to ABC Construction Company as
   discussed in the facts, so that ABC may obtain a construction loan to build a home for the
   Mr. X, subject to the deed recording fee?
2. Is the deed that transfers the same realty, as discussed in the facts, from ABC
   Construction Company back to Mr. X upon completion of the building subject to the
   deed recording fee?

1

Conclusions:

1. The deed that transfers realty from Mr. X to ABC Home Contractors as discussed in
   the facts, so that ABC may obtain a construction loan to build a home for Mr. X, is
   subject to the deed recording fee based on $22,000.00 - the fair market value of the
   realty.
   Note: If the fair market value of the realty for property tax purposes is less than
   $22,000.00, the statute, under Code Section 12-24-30(C), allows the taxpayer to use that
   figure in computing the deed recording fee due.
2. The deed that transfers the same realty, as discussed in the facts, from ABC Home
   Contractors back to Mr. X upon completion of the home is subject to the deed recording
   fee based on $250,000.00 - the money paid or to be paid pursuant to the contract for
   constructing the home.
   Facts:
   Mr. X owns realty with a fair market value of $22,000.00 and wants to construct a home
   on that realty. Mr. X hires ABC Home Contractors (“ABC”) to build a home on the realty
   for $250,000.00.
   In order to obtain the construction loan to build the home, the financial institution is
   requiring that title to the realty on which the home is to be constructed be in the name of
   ABC. Mr. X transfers the realty to ABC under an agreement that ABC will construct the
   home (per specifications agreed upon by both parties) and then transfer the realty back to
   Mr. X upon payment of the $250,000.00.
   Note: For purposes of this example, neither transfer involves a lien or encumbrance that
   existed on the realty before the transfer and remained on the realty after the transfer. In
   addition, neither transfer in this example involves (1) a transaction between a corporation,
   a partnership, or other entity and its stockholder, partner, or owner, or (2) a transaction
   involving a transfer of realty to a trust or as a transfer of realty as a distribution to a trust
   beneficiary.
   Discussion:
   Code Section 12-24-10 imposes the deed recording fee and reads:
   In addition to all other recording fees, a recording fee will be imposed for
   the privilege of recording a deed in which any lands and all improvements
   on the land, tenements, or other realty is transferred to another person.
   The fee is one dollar and eighty-five cents for each five hundred dollars, or
   fractional part of five hundred dollars, of the realty's value as determined
   by Section 12-24-30.

2

Code Section 12-24-30 defines the term “value” as used in the imposition and reads in
part:
(A) For purposes of this chapter, the term “value” means the consideration
paid or to be paid in money or money’s worth for the realty including
other realty, personal property, stocks, bonds, partnership interest, and
other intangible property, the forgiveness or cancellation of a debt, the
assumption of a debt, and the surrendering of a right. The fair market
value of the consideration must be used in calculating the consideration
paid in money’s worth. Taxpayers may elect to use the fair market value
of the realty being transferred in determining fair market value of the
consideration under the provisions of this section. …

(C) Taxpayers may elect to use the fair market value as determined for
property tax purposes in determining fair market value under the
provisions of this section.
Based on the above, the deed recording fee is imposed for the privilege of recording a
deed based on the transaction of transferring realty from one person to another person.
When the consideration paid for realty is money, then the deed recording fee is based on
the money paid1. When the consideration paid for realty is “money’s worth” (e.g. other
realty, stocks, forgiveness of debt), then the taxpayer must base the deed recording fee
upon one of the following:
(a) the fair market value of the consideration paid,
(b) the fair market value of the realty being transferred, or
(c) the fair market value for property tax purposes of the realty being transferred.
Based on the above, both deeds, as discussed in the facts, involve a consideration that is
paid either in money or “money’s worth” and are, therefore, subject to the deed recording
fee.

1

It is important to note that Code Section 12-24-30, in subsection (A), states that the fair market value of
the realty may be used “in determining fair market value of the consideration under the provisions of this
section.” The only mention to fair market value in subsection (A) concerns when the consideration is in
money’s worth, or when the transaction involves a business entity and its owners or a trust. Subsection (C)
allows the fair market value for property taxes to be used again only “in determining fair market value
under the provisions of this section.” Therefore, if realty is transferred for money, and not money’s worth,
the basis for the deed recording fee is the money paid or to be paid if the transaction does not involve realty
transferred between a corporation, a partnership, or other entity and its stockholder, partner, or owner, or
realty transferred to a trust or as a distribution to a trust beneficiary. The realty’s fair market value cannot
be used in this case. See Question #2 in SC Revenue Ruling #04-6.

3

The deed that transfers realty from Mr. X to ABC, so that ABC may obtain a construction
loan to build a home for Mr. X, is subject to the deed recording fee because the
consideration paid or to be paid is in “money’s worth” since that consideration is the
promise to re-convey the realty back to Mr. X upon completion of the home. As such, the
deed recording fee due on this transfer is based on $22,000.00 - the fair market value of
the realty. However, if the fair market value of the realty for property tax purposes is less
than $22,000.00, the statute under Code Section 12-24-30(C) allows the taxpayer to use
that figure in computing the deed recording fee due since the consideration to be paid is
in “money’s worth.”
The deed that transfers the same realty from ABC back to Mr. X upon completion of the
home is subject to the deed recording fee based on $250,000.00 - the money paid or to be
paid pursuant to the contract for constructing the home. Since this consideration is paid in
money, and not “money’s worth,” the deed recording fee can not be based on the fair
market value of the realty or the fair market value of the realty for property tax purposes.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director
June 16
, 2005
Columbia, South Carolina

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