Was a deed of trust held by a federal land credit association exempt from Virginia state and local recordation tax?

Plain-English summary

The deed of trust was exempt from Virginia state and local recordation tax because it was held by a federal land credit association. A husband and wife financed real property through a deed of trust originated and administered by the taxpayer as agent for its federally chartered subsidiary.

Virginia imposed recordation tax under Va. Code § 58.1-803(A), and none of the deed-of-trust exemptions in Va. Code § 58.1-811(B) applied. The controlling exemption instead came from 12 U.S.C. § 2098, which exempted mortgages held by federal land bank associations from federal, state, municipal, and local taxation.

The taxpayer documented that it acted as the subsidiary's agent: it originated and administered the mortgage while the federal land credit association held the deed of trust. Because the exempt subsidiary held the mortgage, the Commissioner found the deed exempt.

Virginia ordered a refund of the state recordation tax plus applicable interest and forwarded the ruling to the county for disposition of the local portion.

What this means for you

• The exemption depended on who held the mortgage, not merely who originated or serviced it.
• The taxpayer's agency and ownership documents were essential to the result.
• The ruling relied on federal law because the ordinary Virginia deed-of-trust exemptions did not apply.
• State and local portions followed separate refund paths in the determination.

Common questions

Q: Did a Virginia statutory exemption apply?
A: No. The exemption came from 12 U.S.C. § 2098.

Q: Why did the agent's involvement not defeat the exemption?
A: The records showed that the agent originated and administered the mortgage while the exempt federal land credit association held it.

Q: What relief was granted?
A: A state-tax refund with interest, with the local portion referred to the county.

Citations and references

• 12 U.S.C. § 2098.
• Va. Code §§ 58.1-803(A) and 58.1-811(B).
• 2003 Op. Va. Att'y Gen. 177.

Subject

The subject deed of trust is exempt from the recordation tax

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-197

Original ruling text

December 6, 2012

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") on behalf of *** (the "Purchasers") for recording a deed of trust.

FACTS

The Purchasers, a husband and wife, financed their purchase of real property through a deed of trust issued by the Taxpayer as an agent for its subsidiary, * (the "Subsidiary"), which is chartered as a federal land credit association (FCLA). The Purchasers submitted the deed of trust to the *** (the "County") for recording and claimed an exemption under federal law from all recording taxes. The County concluded that the Purchasers were not entitled to a recordation tax exemption because the federal tax exemption is not valid. The Taxpayers paid the recordation tax based on the deed of trust and filed an appeal, contending the deed of trust was exempt under federal law.

DETERMINATION

Virginia Code § 58.1-803 A imposes the recordation tax on deeds of trust, mortgages, and supplemental indentures. Virginia Code § 58.1-811 B provides the exemptions from the recordation tax that are applicable to deeds of trusts and mortgages. None of the exemptions as allowed by Va. Code § 58.1-811 B are applicable to the subject deed of trust.

Title 12 U.S.C. § 2098 exempts all mortgages held by federal land bank associations from federal, state, municipal and local taxation. The Attorney General has opined that the exemption under 12 U.S.C. § 2098 would exempt an FLCA from recordation tax. See 2003 Op. Va. Att'y Gen. 177.

Black's Law Dictionary 67 (8 th Ed. 2004) defines "agency" as a relationship between two persons, by agreement, or otherwise, where one (the agent) may act on behalf of the other (the principal) and binds the principal by words and actions. The Taxpayer has provided documentation that shows that it acts as an agent on behalf of the Subsidiary with regard to FLCA deeds of trust. The documentation further demonstrates that the Taxpayer originates and administers mortgages while the Subsidiary holds the deed of trust. Because the Subsidiary is an FLCA, the subject deed of trust is exempt from the recordation tax imposed by Va. Code § 58.1-803.

For the reasons set forth above, a refund for the state portion of the recordation tax paid, plus applicable interest will be issued shortly. A copy of this letter will be forwarded to the County for disposition of the local portion of the tax.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5179971729.B