Does a federal credit union have to pay Virginia's grantor's recordation tax when it transfers real estate?

Plain-English summary

Terry Whittle, the Clerk of Court for the Winchester Circuit Court, needed to know how to handle real estate transfers where a federal credit union sold property. Virginia charges grantors a recordation tax under Va. Code § 58.1-802. The question: does the federal tax exemption for credit unions reach this tax?

The federal statute in play, 12 U.S.C. § 1768, exempts federal credit unions and their property, franchises, capital, reserves, surpluses, other funds, and income from "all taxation now or hereafter imposed by the United States or by any State, Territorial, or local taxing authority." The exception: "any real property and any tangible personal property of such Federal credit unions shall be subject to Federal, State, Territorial, and local taxation to the same extent as other similar property is taxed."

So real property taxes (annual ad valorem) and tangible personal property taxes still apply. Everything else does not.

The question turned on what kind of tax the Virginia recordation tax is. The AG relied on a 1912 Virginia Supreme Court case, Pocahontas Consolidated Collieries, which described the recordation tax as "not a tax upon property ... but a tax upon a civil privilege ... of availing ... of the benefits and advantages of the registration laws of the State." It is a tax on the use of the recording system, not a tax on the underlying real estate.

That distinction matters. The exception in § 1768 covers property taxes; the recordation tax is not a property tax. So the recordation tax falls within the "all taxation" the federal statute exempts.

A line of prior AG opinions had reached the same conclusion for other federally-created entities exempted from "all taxation" (FDIC, Federal Housing Administration, federal home loan banks). The language of 12 U.S.C. § 1768 was materially identical, so the same result followed for federal credit unions.

One important caveat the AG flagged in a footnote: when the federal entity is not the principal party but merely a guarantor or beneficiary, the exemption does not flow through. So a Fannie Mae or VA-guaranteed mortgage between two private parties does not get the exemption.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The substantive analysis here (federal supremacy + statutory exemption language) is generally durable, but the specific scope of recordation taxes in Virginia has been amended multiple times since 2013. Verify current § 58.1-800 et seq. before applying to a specific transaction.

Common questions

Who is the grantor in a real estate transfer?
The seller, the person conveying the property to the buyer. Virginia's grantor's tax under § 58.1-802 was historically about 0.10% (10 cents per $100) of the consideration or value, paid by the seller at recording.

Why is recordation tax "not a property tax"?
The Virginia Supreme Court has long treated it as a tax on the privilege of using the state recording system. You don't owe it unless you actually record an instrument. It is event-based and use-based, not based on ownership of property over time.

Why does the property-tax distinction matter for the federal exemption?
Because 12 U.S.C. § 1768 generally exempts FCUs from all state and local taxation but specifically preserves state authority to tax FCU real property and tangible personal property. If the recordation tax were a property tax, that preservation would let Virginia keep collecting it. Since it is a privilege tax, the general "all taxation" exemption wins.

What if the federal credit union is the buyer (grantee)?
The 2013 opinion specifically addresses the grantor's tax under § 58.1-802. Virginia has historically had a separate grantee's recordation tax under § 58.1-801. The same general principle applies: if "all taxation" exempts the FCU, the FCU is exempt as the principal party. But always check current statutes.

What about state credit unions?
State-chartered credit unions are not federally created entities, so 12 U.S.C. § 1768 doesn't reach them. They would be subject to recordation tax unless some other state-law exemption applied.

What if the FCU only guarantees a mortgage between two private parties?
The AG flagged this in a footnote. Federal tax exemptions for federal entities flow through only when the federal entity is a principal to the transaction. A federal guarantor or beneficiary does not import its tax exemption into a transaction between private parties.

Background and statutory framework

The two key statutes:

• Va. Code § 58.1-802(A): imposes the grantor's recordation tax on "each deed, instrument, or writing by which lands, tenements or other realty sold is granted, assigned, transferred, or otherwise conveyed."
• 12 U.S.C. § 1768: federal exemption for federal credit unions from "all taxation" except property taxes.

The interpretive principle: a federal statute exempting a federal entity from "all taxation" preempts state taxes the federal entity would otherwise owe. The exception clause has to be read narrowly; it covers what it expressly covers (real and tangible personal property) and nothing else.

Pattern from prior AG opinions: federal entities exempt from "all taxation" (FDIC, FHA, etc.) had repeatedly been held exempt from the Virginia recordation tax. The AG applied the same pattern here. The pattern is itself a reflection of the Supreme Court's longstanding distinction between privilege taxes and property taxes.

Citations

• Va. Code § 58.1-802(A)
• 12 U.S.C. § 1768
• Pocahontas Consol. Collieries Co. Inc. v. Commonwealth, 113 Va. 108, 73 S.E. 446 (1912)
• 1992 Op. Va. Att'y Gen. 183
• 1993 Op. Va. Att'y Gen. 260
• 2002 Op. Va. Att'y Gen. 328
• 2003 Op. Va. Att'y Gen. 177
• 2012 Op. Va. Att'y Gen. No. 12-038

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/13-010_Whittle.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

March 29, 2013

The Honorable Terry H. Whittle
Clerk of Court, Winchester Circuit Court
Frederick-Winchester Judicial Center
5 North Kent Street
Winchester, Virginia 22601

Dear Mr. Whittle:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether Federal Credit Unions are exempted from paying the recordation tax imposed on grantors by § 58.1-802 of the Code of Virginia pursuant to the exemption provided by 12 U.S.C. § 1768.

Response

It is my opinion that, pursuant to the exemption provided by 12 U.S.C. § 1768, Federal Credit Unions are exempted from paying the recordation tax imposed on grantors by § 58.1-802 of the Code of Virginia.

Applicable Law and Discussion

Virginia law applies a tax on "each deed, instrument, or writing by which lands, tenements or other realty sold is granted, assigned, transferred, or otherwise conveyed to, or vested in the purchaser, or any other person, by such purchaser's direction."[1] As previous Opinions of this Office have noted, however, "'Congress may create exemptions from taxation for specific entities even if such exceptions are not memorialized in the states' laws. Implicit in [this] opinion is the authority of the federal government to exempt specific real estate transactions from state taxation.'"[2]

Applicable to your inquiry is the statutory exemption from taxation granted to Federal Credit Unions. The United States Code provides that

The Federal credit unions organized [under 12 U.S.C. Chapter 14], their property, their franchises, capital, reserves, surpluses, and other funds, and their income shall be exempt from all taxation now or hereafter imposed by the United States or by any State, Territorial, or local taxing authority; except that any real property and any tangible personal property of such Federal credit unions shall be subject to Federal, State, Territorial, and local taxation to the same extent as other similar property is taxed.[3]

Thus, Congress has exempted Federal Credit Unions from "all taxation" by state and local governments, while explicitly allowing taxation of any real or tangible personal property of the Credit Unions as other similar property is taxed.

The recordation tax imposed on grantors by § 58.1-802 is "not a tax upon property ... but a tax upon a civil privilege ... of availing ... of the benefits and advantages of the registration laws of the State."[4] Opinions of this Office consistently have held that a federal exemption of a federally created entity from "all taxation" exempts the entity from recordation taxes, even when such exemption explicitly allows for the taxation of the entity's property.[5] There is no substantive difference in the language of 12 U.S.C. § 1768 and the statutes interpreted in these prior Opinions. I therefore conclude that 12 U.S.C. § 1768 must be read to exempt Federal Credit Unions from state and local recordation taxes.

Conclusion

Accordingly, it is my opinion that, pursuant to the exemption provided by 12 U.S.C. § 1768, Federal Credit Unions are exempted from paying the recordation tax imposed on grantors by § 58.1-802 of the Code of Virginia.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General

[1] Va. Code Ann. § 58.1-802(A) (2009).

[2] 2012 Op. Va. Att'y Gen. No. 12-038 at 1 (quoting 2003 Op. Va. Att'y Gen. 177, 179). See also 2002 Op. Va. Att'y Gen. 328, 329.

[3] 12 U.S.C. § 1768 (emphasis added).

[4] Pocahontas Consol. Collieries Co. Inc. v. Commonwealth, 113 Va. 108, 112, 73 S.E. 446, 448 (1912).

[5] See 1992 Op. Va. Att'y Gen. 183, 185; 1993 Op. Va. Att'y Gen. 260, 262; 2012 Op. Va. Att'y Gen. No. 12-038 at 5. I note that this is not the case when the federal entity is not a principal to the transaction, but rather a guarantor or a beneficiary. See 2002 Op. Va. Att'y Gen. 328, 329.