RD379 - Department of Taxation Report on Recordation and Grantor Taxes - November 30, 2009


Executive Summary:
Legislation during the 2009 General Assembly Session was introduced that would have required the recordation tax and the grantor’s tax on deeds to be based upon stated consideration, even when it is less than the actual value of the real estate conveyed by the deed. There was some discussion over whether stated consideration or the actual value of the property conveyed should be the basis for calculating the recordation and the grantor’s tax. The General Assembly decided to authorize a working group to further study this issue and produce a written report to be presented to the General Assembly.

Background

In 2001, Chapter 830, Acts of Assembly 2001, (HB 2814), amended Va. Code §§ 58.1-801 and 58.1-802, to require that the recordation taxes on deeds always be based on the amount of consideration paid for the property. However, the Act contained two additional enactments. The second enactment required the bill to be reenacted by the 2002 General Assembly, which did not occur. The third enactment directed TAX to collaborate with the Virginia Court Clerks Association to determine the impact that the Act would have on state and local recordation tax revenues.

The 2001 study showed that the Commonwealth and its localities would experience a loss of recordation tax revenues if House Bill 2814 were to be re-enacted. However, due to the lack of data, the magnitude of the loss could not be determined with any accuracy.

2009 Study

TAX, after convening a meeting with the representatives of the groups specified by the 2009 Appropriations Act, distributed two surveys to the clerks of the Circuit Courts. The first survey gathered data from clerks of the circuit courts in each of the localities regarding their general practices and procedures related to the evaluation and investigation (if necessary) into each deed. The second survey was sent to the clerks in the top 50 localities plus an additional 12 smaller localities that were chosen in order to gain geographic diversification. This data collection survey requested both the consideration of the deed and the adjusted value on which tax was assessed for each deed that was adjusted.

Findings

If the taxable basis were changed from the consideration or actual value, whichever is greater, to only the consideration, the total revenue loss that would incur is shown below.

Table 1: Total Revenue Loss

FY 2010:
Fiscal Impact (Amounts in $ millions)

State: (Recordation and state share of Grantor's tax): (6.5)
Local: (Recordation and local share of Grantor's tax): (2.9)
Total Revenue Loss: (9.3)

FY 2011:
Fiscal Impact (Amounts in $ millions)

State: (Recordation and state share of Grantor's tax): (6.5)
Local: (Recordation and local share of Grantor's tax): (2.9)
Total Revenue Loss: (9.4)

*Estimates were rounded to the nearest $100,000.

The estimated revenue impact is derived from the adjustments for deeds recorded in August 2009, as reported by the clerks who responded to the second survey. The reported adjustments were projected to the forecasted recordation tax revenue for FY 2010 and FY 2011. Recordation tax revenue is both seasonal and highly sensitive to the economy. Because August is part of the peak season for recording deeds, and the economy was in recession during 2009, the actual revenue loss from the proposed statutory change could be significantly greater or smaller than these estimates.

Conclusions

The 2009 study, though affected by data limitations, provided more useful information and a better fiscal analysis than did the 2001 study. Based on this analysis it is evident that if that statutory language were changed so that recordation and grantor’s taxes were based solely on the consideration of the deed, there would be a revenue loss.

The working group identified several issues affecting enforcement of the recordation tax that affect not only the collection of the property tax, but the accuracy of the data used to distribute state funds to localities and for real estate professionals to accurately appraise property. The working group was unable to fully investigate these enforcement issues in the time frame of this study. If these issues are considered significant, then it may be appropriate to extend the study to investigate issues related to the enforcement of recordation tax law and policies, and to develop strategies to resolve any problems identified.