Did a mortgage refinance qualify for Virginia's same-lender recordation-tax rule when the old lender was a limited-partnership subsidiary of the new lender?

Subject

Refinanced deed of trust; Lender A and Lender B do not qualify as the same lender.

Plain-English summary

Virginia denied the recordation-tax refund because the original lender and refinancing lender were related but separate legal entities. The homeowner's 2006 mortgage was held by Lender A. The February 2010 refinance and recorded deed identified Lender B.

Virginia's same-lender rule applied only when the refinancing lender was the lender then holding the existing debt. When it applied and tax had already been paid on the original deed, recordation tax was imposed only on the new deed amount exceeding the amount originally secured.

The evidence showed that Lender A was a limited partnership and a subsidiary of Lender B. Virginia treated the limited partnership as a separate legal entity. A cited Attorney General opinion distinguished a merger or acquisition, which could preserve same-lender status, from separately organized parent and subsidiary institutions.

Because Lender A and Lender B remained separate, the refinance did not satisfy Va. Code § 58.1-803(D), and the refund was denied.

What this means for you

• Corporate affiliation alone did not make two lending entities the same lender.
• Identify the legal entity holding the existing debt and the legal entity making the refinance.
• Review merger, acquisition, subsidiary, and assignment documents before claiming the reduced tax base.
• The deed and lender records controlled more than a borrower's understanding that the lenders were related.

Common questions

Did the parent-subsidiary relationship qualify?

No. Virginia treated the limited-partnership subsidiary and its parent as separate entities.

Would every merger or acquisition fail the same-lender test?

No. The ruling cited an Attorney General opinion saying a financial institution that merged with or acquired the holder could be considered the same lender.

Citations and references

• Va. Code § 58.1-803(A) and (D).
• Va. Code § 58.1-390.1.
• 1996 Attorney General Annual Report opinion dated July 19, 1996.
• P.D. 96-384 and P.D. 06-3.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-19

Original ruling text

February 18, 2011

Re: § 58.1-1821 Application: Recordation Tax

Dear *:

This will reply to your letter in which you request a refund of state and local recordation taxes paid by * (the "Taxpayer") for recording a refinanced deed of trust. I apologize for the delay in the Department's response.

FACTS

The Taxpayer's original 2006 home mortgage was held by * ("Lender A"). In February 2010, the Taxpayer refinanced his mortgage and recorded the refinanced deed of trust in the (the "County"). The County's deed of receipt shows the Taxpayer refinanced with ** ("Lender B").

The County determined that the Taxpayer was not entitled to the provisions under Va. Code § 58.1-803 D for refinancing with the same lender because Lender A and Lender B did not qualify as the same lender. The Taxpayer contends that the refinanced loan was made through the same lender.

DETERMINATION

Virginia Code § 58.1-803 A imposes the recordation tax on deeds of trust, mortgages, and supplemental indentures. Under Va. Code § 58.1-803 D, when a deed of trust is used in refinancing an existing debt with the same lender and the tax has been previously paid on the original deed of trust securing the debt, the recordation tax will only apply to the portion of the deed of trust that exceeds the amount originally secured by the original debt.

The Department has defined "existing debt with the same lender" to mean that the lender providing the refinancing must be the same as the lender now holding the existing debt being refinanced. See Public Document (P.D.) 96-384 (12/20/1996) and P.D. 06-3 (1/6/2006). In other words, in order to qualify for the exemption provided in Va. Code § 58.1-803 D, a taxpayer must refinance his debt with the mortgage company that holds the deed of trust.

The Virginia Attorney General opined in 1996 Att'y Gen. Ann. Rep. 07191996 (7/19/1996), that a financial institution that merges with, or acquires another financial institution holding existing debt to be refinanced is considered to be the "same lender" for purposes of Va. Code § 58.1-803 D, whereas parent and subsidiary financial institutions structured as separate legal entities do not qualify as the same lender. The issue, therefore, is whether Lender A and Lender B were related but separate legal entities, or whether the Lender B qualifies as the same lender as Lender A.

According to the evidence provided, Lender A is a limited partnership. Limited partnerships are separate legal entities for Virginia tax purposes. See Va. Code § 58.1-390.1. The documentation shows that Lender A is a subsidiary of Lender B. As such, Lender A and Lender B are separate legal entities. Thus, the Taxpayer's refinancing did not occur with the same lender as required by Va. Code § 58.1-803 D, and the Taxpayer is not entitled to the exemption for refinancing a debt with the same lender. Accordingly, the Taxpayer's request for the refund of recordation tax paid on the refinanced deed of trust is denied.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4481567449.B