Did refinancing through a lender's subsidiary qualify for Virginia's same-lender recordation-tax exemption when the parent serviced the loan?

Plain-English summary

Virginia denied the same-lender refinancing exemption because the original lender and refinancing subsidiary were separate legal entities. The homeowner's 2006 mortgage was held by Lender A. The 2010 recorded deed showed Lender B, a subsidiary, as the refinancing lender.

The homeowner supplied statements showing monthly payments went to Lender A. But those same records identified Lender B as the lender and Lender A as the loan servicer.

Virginia limited the exemption to refinancing with the mortgage company that currently held the existing debt. Because tax exemptions were strictly construed and the new evidence did not clearly establish the same legal lender, the Department upheld its earlier denial and refused the refund.

What this means for you

• A parent and subsidiary are not automatically the same lender.
• Payment processing or servicing does not prove who made or holds the refinancing loan.
• Compare the original deed holder, new deed lender, payoff documents, and servicing statements.
• The exemption applied only to the qualifying same-lender portion described by statute.

Common questions

Q: Did paying the parent company prove it was the lender?
A: No. The statement identified the parent as servicer and the subsidiary as lender.

Q: Was the refund granted on reconsideration?
A: No. Virginia again denied it.

Citations and references

• Va. Code § 58.1-803.
• Virginia Public Documents 96-384, 06-3, and 11-19.
• Howell's Motor Freight, Inc. v. Virginia Department of Taxation, Law No. 82-0846 (Roanoke Cir. Ct. October 27, 1983).

Subject

No exemption for refinancing an existing debt with the same lender

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-194

Original ruling text

December 2, 2011

Re: § 58.1-1821 Application: Recordation Tax

Dear *:

This will reply to your letter seeking reconsideration of the Department's determination letter, issued as Public Document (P. D.) 11-19 (2/18/2011), to * (the "Taxpayer") for recordation tax paid to the *** (the “County”).

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 County. The County's deed of receipt shows the Taxpayer refinanced with *** (Lender B). The monthly payment of the refinancing mortgage was made to Lender A.

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 appealed the assessment to the Department, contending he was entitled to the refinancing exemption because he refinanced the loan through the same lender. In P.D. 11-19, the Department determined that the Taxpayer did not refinance the loan through the same lender and denied his refund. The Taxpayer requests a reconsideration, stating that his loan payoff statement and monthly mortgage statement show that he refinanced with 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 § 513.1-803 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 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 Department disallowed the exemption in P. D. 11-19 because Lender B was a subsidiary of Lender A; therefore, they were separate legal entities and not the same lender. The Taxpayer has now provided a monthly mortgage statement that shows that the monthly payments for the refinancing mortgage were also made to Lender A. This statement, however, also states that the refinancing mortgage is with Lender B and that the loan servicer is Lender A.

By reason of their character as legislative grants, statutes relating to exemptions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell's Motor Freight, Inc., et al. v. Virginia Department of Taxation , Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983). In this case, the evidence presented does not clearly establish that the refinancing occurred with the same lender that held the existing debt. Thus, the Taxpayer is not entitled to the exemption for refinancing a debt with the same lender.

While I recognize your continuing disagreement with the validity of the assessment, P. D. 11-19 and this determination letter clearly explains the Department's authority for disallowing the exemption for refinancing an existing 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/1-4719429182.B