The county charged recordation tax based on the property's assessed value, which was higher than what I actually paid -- shouldn't the purchase price control instead?

Plain-English summary

A buyer presented a deed for recordation with a Virginia county in October 2020. The county's clerk assessed state and local recordation tax based on the property's ASSESSED value, which was HIGHER than the actual purchase price (consideration) paid for the property. The buyer appealed, arguing the recordation tax should have been based on the purchase price instead.

Virginia's recordation tax system is deliberately built to use the GREATER of two figures: the actual consideration (purchase price) OR the property's actual (fair market) value -- so a buyer can't automatically insist on the lower purchase price controlling. The clerk of the circuit court where the deed is recorded is legally responsible for determining the consideration, the actual value, and any claimed exemption, and may look at "inquiry, affidavit, declaration or other extrinsic evidence" to make that call.

Under established Virginia case law, a property's ASSESSED value (from local real estate taxation) carries a very strong presumption of accuracy as evidence of fair market value -- reinforced by the fact Virginia law separately requires local real estate assessments to be made at 100% of fair market value, so a RECENT assessment can reasonably be presumed to reflect actual value. That said, a clerk isn't required to use the assessed value to the EXCLUSION of other reliable evidence -- if a taxpayer can show, with clear and cogent evidence, that the assessed value doesn't reflect the property's actual value as of the transaction date, the clerk has authority to consider that other evidence (which could include the purchase price itself, an appraisal, or other market information) in setting the recordation tax base. Placing a value on real estate for this purpose is a factual determination, and the Department will generally defer to the clerk's judgment unless it's shown to be unreasonable -- merely disagreeing with the clerk's valuation isn't enough to meet that bar.

Rather than resolve the specific valuation dispute itself, the Department forwarded the matter to the county's clerk, asking for a fresh review of the property's actual value considering all relevant, reliable information available -- including any appraisal the buyer could produce. If that review results in a lower value, the state portion of the recordation tax overpayment would be refunded by the Department, and the local portion would be refunded separately by the county.

What this means for you

Buyers who paid recordation tax based on an assessed value higher than their purchase price

The purchase price alone doesn't automatically control -- Virginia's recordation tax uses the GREATER of consideration or actual value, and a recent property tax assessment carries a strong legal presumption of reflecting fair market value. To overcome that presumption, be ready to provide clear and cogent evidence (such as a professional appraisal, not just the sale price by itself) showing the assessment doesn't reflect the property's actual value as of your transaction date.

Buyers who believe an assessment is outdated or no longer reflects current market conditions

If the assessment is not recent, or you have reason to believe market conditions have shifted since it was made, that's exactly the kind of situation where a clerk should be looking at OTHER evidence of actual value -- raise it directly and provide supporting documentation (an appraisal is the most persuasive) rather than simply asserting the purchase price should apply.

Anyone appealing a clerk's real estate valuation for recordation tax purposes

Understand that the Department generally DEFERS to the clerk's factual valuation judgment unless it's shown to be unreasonable -- simply disagreeing with the number isn't sufficient. Come prepared with concrete, reliable valuation evidence if you want the clerk (and by extension, the Department) to revisit the figure.

Common questions

Q: Is Virginia recordation tax based on the purchase price or the property's assessed value?
A: Neither one automatically -- it's based on the GREATER of the actual consideration (purchase price) or the property's actual (fair market) value, as determined by the clerk of court where the deed is recorded.

Q: Why does a county's assessed value carry so much weight in a recordation tax dispute?
A: Because Virginia law separately requires local real estate assessments to be made at 100% of fair market value, a RECENT assessment is presumed to reflect actual value, and Virginia case law gives assessed values a strong presumption of accuracy for this purpose -- though that presumption can be overcome with clear and cogent contrary evidence.

Q: What kind of evidence can overcome a county's assessed value for recordation tax purposes?
A: Clear and cogent evidence that the assessment doesn't reflect the property's actual value as of the transaction date -- a professional appraisal is the strongest example; the sale price alone, without more, may not be enough if the clerk still finds the assessment more reliable.

Citations and references

• Shoosmith Bros., Inc. v. County of Chesterfield, 268 Va. 241, 601 S.E.2d 641 (2004) and Tidewater Psychiatric Institute, Inc. v. Virginia Beach, 256 Va. 136, 501 S.E.2d 761 (1998) (assessed value is accorded a very strong presumption of accuracy in determining fair market value)
• P.D. 00-97 (5/26/2000), P.D. 06-77 (8/23/2006), P.D. 11-41 (3/14/2011), P.D. 11-191 (11/30/2011), P.D. 15-205 (10/20/2015), and P.D. 16-178 (9/6/2016) (a clerk may rely on other reliable evidence of actual value if clear and cogent evidence shows the assessed value doesn't reflect fair market value at the time of the transaction)
• P.D. 91-146 (8/2/1991) (valuing real estate for recordation tax purposes is a factual determination made by the clerk, who is familiar with the property and local market conditions)
• P.D. 88-317 (11/10/1988) (because local assessments must reflect 100% of fair market value, a clerk may reasonably presume a recent assessment reflects actual value)

Subject

Valuation : Fair Market Value - Purchase price

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-109

Original ruling text

August 24, 2021

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 deed.

FACTS

In October 2020, the Taxpayer presented a deed for recordation to * (the “County”). The County assessed recordation tax based on the assessed value of the property, which was greater than the consideration for the conveyance of the real property interest. The Taxpayer appeals the assessment, contending that the state and local recordation taxes should have been based on the purchase price.

DETERMINATION

Virginia Code § 58.1-800 et seq., imposes the state tax on the recordation of documents relating to real estate transactions. A recordation tax is imposed on any instrument admitted to record unless otherwise exempt by statute. Under Virginia Code § 58.1-801, a state recordation tax is imposed on deeds of 25¢ on every $100 or fraction thereof of the consideration or the actual value of the property conveyed, whichever is greater. Any city or county may impose a recordation tax equal to 1/3 of the amount of state recordation tax. See Virginia Code § 58.1-814. Pursuant to Virginia Code § 58.1-802, an additional grantor’s tax of 50¢ on every $500 or fraction thereof, exclusive of any lien or encumbrance remaining thereon at the time of the sale, is imposed on the greater of actual value of the property conveyed or the consideration of the sale. The grantor’s tax is divided equally between the state and the locality.

Virginia Code § 58.1-812 B provides that:

The tax on every deed, deed of trust, contract or other instrument shall be determined and collected by the clerk in whose office the instrument is first offered for recordation. The clerk may ascertain the consideration of the deed or of the instrument, the actual value of the property conveyed, and the qualification of the deed or instrument for any exemption claimed by inquiry, affidavit, declaration or other extrinsic evidence acceptable to the clerk.

In this case, the Taxpayer contends that the consideration paid for the transfer of the property interest represents the best indication of the fair market value for purposes of recordation tax. The assessed value is accorded a very strong presumption of accuracy in determining fair market value. See Shoosmith Bros., Inc. v. County of Chesterfield , 268 Va. 241, 601 S. E.2d 641 (2004) and Tidewater Psychiatric Institute, Inc. v. Virginia Beach , 256 Va. 136, 501 S.E.2d 761 (1998). A clerk of a circuit court is not required to use the assessed value to the exclusion of other reliable information as to the current fair market value. If it can be shown by clear and cogent evidence why the assessed value does not reflect fair market value as of the date of the transaction, the clerk has the authority to rely on such evidence to determine the proper amount of the recordation tax. See Public Document (P.D.) 00-97 (5/26/2000), P.D. 06-77 (8/23/2006), P.D. 11-41 (3/14/2011), P.D. 11-191 (11/30/2011), P.D. 15-205 (10/20/2015) and P.D. 16-178 (9/6/2016).

Placing a value on real estate is entirely a factual determination that is best made by one who is thoroughly familiar with the property itself and local market conditions. This responsibility lies with the clerk when the value must be determined for recordation tax purposes. See P.D. 91-146 (8/2/1991). The Department will defer to a clerk’s determination of a property’s value unless the clerk’s valuation is unreasonable. The mere fact that a taxpayer disagrees with a clerk’s valuation is not sufficient to show it is unreasonable.

Because Virginia Code § 58.1-3201 requires all assessments of real estate for purposes of local property taxation to be made at 100% of fair market value, it is reasonable for a clerk to presume that a recent assessment reflects the actual value of the property. See P.D. 88-317 (11/10/1988). Where the clerk has reason to believe that the assessed value does not reflect the actual value (e.g., the assessment is not recent), the clerk should seek other evidence of the actual value.

The Department will send a copy of this letter to the Clerk of the County and request a review of the determination of the actual value of the property taking into consideration all relevant and reliable information available, including any appraisal the Taxpayer may be able to produce. When the County informs the Department of the correct fair market value, the Department will refund the appropriate amount of state recordation tax if warranted. A refund of the local recordation tax would then be issued by the County.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3675.B

Related Documents

88-317

91-146

00-97

06-77

11-41

11-191

15-205

16-178