Grantor’s Tax – Plan Accordingly

By now, we have all heard about the landmark transportation law passed by the Virginia General Assembly that raises new revenue to fund transportation initiatives across the Commonwealth (HB 2313). This law will be effective July 1, 2013.

Among the increase in sales, use and fuel taxes is an increase in the grantor’s tax, or that tax imposed on transferors of real estate located in the Commonwealth of Virginia. However, the increased tax is only applicable to certain geographic areas. Specifically, the tax will be imposed on properties located in Arlington, Fairfax, Loudoun and Prince Williams, as well as the cities of Alexandria, Fairfax, Falls Church, Manassas and Manassas Park and the towns of Dumfries, Herndon, Leesburg, Purcellville and Vienna. Additionally, certain counties and cities in the Hampton Roads area will also be subject to the increased tax.

The current tax imposed is .10/$100 of the sales price or fair market value, whichever is higher. As of July 1, 2013, the tax is increased to .25/$100 (or $2.50/$1,000). This represents a 150% increase in the grantor’s tax. For example, on a $400,000 sale, the tax is increased from $400 to $1,000.

While not all clerk’s offices have provided formal guidance on the collection of the increased tax, from a practical point of view and to “play it safe”, it is best to presume this increased tax will be imposed on recordings as of July 1, 2013 (both Arlington and Loudoun have confirmed this). Therefore, it is important to communicate with seller clients and plan your real estate closings accordingly for the month of June, 2013. The last business day of June, 2013 is the 28th, which is a Friday. As we know, the last day of the month can be quite busy and there is no guarantee a transaction that closes June 28, 2013 will be recorded that day, which will cause the increased grantor’s tax to be applied.