Opinion ID: 2310780
Heading Depth: 2
Heading Rank: 2

Heading: The refinancing exemption.

Text: The refinancing exemption is found in D.C.Code § 45-923(a)(3). That provision imposes a 1.1% tax on the recordation of security interest instruments, but states: [W]hen existing debt is refinanced, the recordation tax shall only apply to the amount of any new debt incurred over and above the amount of the principal balance due on existing debt if the existing debt was ... subject to taxation under this paragraph. Id. The foregoing language imposes two requirements which must be satisfied for a deed of trust to qualify for the refinancing exemption. First, the deed must be a security interest instrument. Id. Second, the existing debt must have been subject to taxation under this paragraph. [13] Id. With regard to the first requirement, the trial judge concluded that the 1995 deed was indeed a security interest instrument. As the judge stated in her written order, [t]he January 31, 1995 instrument refinanced an existing permanent loan deed of trust, to the tune of $22,000,000.00. Refinancing statements are included in the definition of security interest instruments. See D.C.Code § 45-921(14)(D). The 19th Street instrument is a security interest instrument because it is a refinancing statement that creates an encumbrance on real property[, namely on the 19th Street property owned by 19th Street Associates.] (Footnote omitted.) We agree. The trial judge also held, however, that the second requirement, namely, that the existing debt ... was subject to taxation under this paragraph, D.C.Code § 45-923(a)(3), has not been satisfied. [14] That existing debt, refinanced through the 1995 permanent loan and evidenced in the 1995 deed of trust, was the 1981 permanent loan in the amount of $23,500,000.00. When the taxpayer recorded the 1981 permanent loan deed of trust, it paid the $15,000.00 recordation tax due on the amount by which the 1981 loan exceeded the prior construction loan. That tax, however, was imposed by D.C.Code § 45-923(a) (1981), and not by § 45-923(a)(3). Consequently, the trial judge correctly concluded that the 19th Street 1995 recordation does not qualify for a refinancing exemption under D.C.Code § 45-923(a)(3) because the existing debt, the January 1981 permanent loan deed of trust, was not subject to tax under section [45-]923(a), paragraph 3. The taxpayer characterizes this conclusion as the [t]rial [c]ourt's novel interpretation of the Act's numbering scheme, and argues that most legal practitioners would take exception to the designation of item (3) as a paragraph, rather than as a `sub-paragraph.' We do not agree. Even assuming, arguendo, that the reference to this paragraph in D.C.Code § 45-923(a)(3), standing alone, is ambiguous, and even if the provision could plausibly be construed in the manner urged upon us by the taxpayer, a reading of the entire Omnibus Budget Support Act of 1994 (the Omnibus Act), D.C. Act. No. 10-225, 41 D.C.Reg. 2096-2112 (1994), [15] supports our conclusion that the trial judge correctly parsed the statutory language and its complex hierarchy of letters, numbers, and parentheses. With regard to § 45-923, the Omnibus Act states that [s]ubsection (a) is amended. 41 D.C.Reg., supra, at 2099. While the Act does not explicitly state that item (3) of that subsection is a paragraph, its definition of item (a) of § 45-923 as a subsection makes it illogical to treat item (3) as a sub-paragraph. It is not reasonable to suppose that the Council meant to create a statutory hierarchy in which a section ( i.e., § 45-923) is followed by a subsection ( i.e., § 45-923(a)), which, in turn, is followed by a sub-paragraph ( i.e., § 45-923(a)(3)), with no intervening paragraph separating the subsection from the sub-paragraph. A review of the Omnibus Act's references to other sections it amended discloses that the Council interpreted the hierarchy of sections, subsidiary paragraphs, and sub-paragraphs just as we do. For example, the Omnibus Act's amendments to § 47-1803.3 are described as follows: D.C.Code § 47-1803.3(a) ... is amended by adding a new paragraph (16). 41 D.C.Reg., supra, at 2101. Consequently, the item at § 47-1803.3(a)(16) is considered a paragraph. By analogy, D.C.Code § 45-923(a)(3)'s reference to this paragraph must also refer to item (a)(3) of that section. [16] In order to be entitled to avail itself of the refinancing exemption in connection with the 1995 deed of trust, the taxpayer must show that its 1981 loan (that is, the existing debt, D.C.Code § 45-923(a)(3)) was subject to taxation under D.C.Code § 45-923, subsection (a), paragraph (3). When the 1981 loan and deed of trust were recorded, however, § 45-923 contained a subsection (a), but that subsection was not divided into further paragraphs. D.C.Code § 45-923 (1981). Consequently, 19th Street Associates cannot demonstrate that it was subject to taxation under this paragraph,  i.e., under D.C.Code § 45-923(a)(3) (emphasis added), and the trial judge correctly concluded that the 1995 deed of trust was not exempt from the recordation tax under the refinancing exemption. [17]