Opinion ID: 2310780
Heading Depth: 2
Heading Rank: 1

Heading: The permanent loan deed of trust exemption.

Text: With respect to permanent loan deeds of trust, the Act provides as follows: When a permanent loan deed of trust... is submitted for recordation and the tax on the construction loan deed of trust ... has been timely and properly paid, no additional tax liability arises under § 45-923, except where the amount of the obligor's liability secured by the permanent loan deed of trust ... exceeds the amount of his liability secured by the construction loan deed of trust ..., in which case the tax shall be calculated only on the amount of such difference. D.C.Code § 45-922(11). The statute further sets forth the following definitions: The words permanent loan deed of trust ... mean a deed of trust ... upon real estate which secures an instrument made by the same obligors who made the instrument which the construction loan deed of trust ... secured, and which conveys substantially the same real estate. Id. § 45-921(10). The words construction loan deed of trust ... mean a deed of trust ... upon real estate which is given to secure a loan for new real estate construction. Id. § 45-921(9). It is undisputed that the deed of trust recorded by 19th Street Associates in 1995 was a permanent loan deed of trust as that term is defined in the Act. The three loans relevant to this case (the 1979/1980 construction loan, the 1981 permanent loan, and the 1995 permanent loan) were all obtained by the same obligor (19th Street Associates), and each was secured by the 19th Street property. [7] The taxpayer contends that the 1995 recordation falls under the permanent loan deed of trust exemption. Its argument goes as follows: (a) On June 30, 1980, the taxpayer recorded its final construction loan deed of trust securing a construction loan in the amount of $22,000,000.00. (b) In June 1980, no recordation tax was due on the recordation of construction loan deeds of trust, see D.C.Code § 45-722(5) (1973); id. § 45-922(5) (1981), [8] and there was therefore no unpaid tax. This means, according to the taxpayer, that the tax on the construction loan deed of trust ... has been timely and properly paid, as required to make the taxpayer eligible for the permanent loan deed of trust exemption. Id. § 45-922(11). (c) The 1995 recordation involved a permanent loan deed of trust which was secured by the same real property that served as collateral for the 1980 construction loan. (d) The permanent loan deed of trust exemption therefore applies and, because the current permanent loan is in the same amount as the initial construction loan, there is no recordation tax due on the 1995 recordation. (e) Consequently, the taxpayer is entitled to a full refund of the $242,000.00 recordation tax it paid in 1995. The District responds that the foregoing series of steps by the taxpayer omits a crucial intervening event, which occurred in 1981. In that year, the taxpayer recorded the permanent loan deed of trust securing the $23,500,000.00 permanent loan with which it had directly refinanced its construction loan. The District argues that this intervening loan disqualifies the taxpayer from claiming the permanent loan deed of trust exemption for the recordation of its permanent loan in 1995, because the 1995 transaction replaced a permanent loan deed of trust rather than a construction loan deed of trust. We agree with the District. It is true, as the taxpayer points out, that the statute does not say in so many words that a permanent loan must replace a construction loan in order for the resulting deed of trust to be eligible for the permanent loan deed of trust exemption. We are, however, required to give the statutory language a reasonable construction. Acme Reporting Co., supra, 530 A.2d at 712. We believe that the language of D.C.Code § 45-922(11), reasonably read, requires a direct linkage between the permanent loan and an immediately preceding construction loan. Under the exemption, a recordation tax is due on any amount by which the permanent loan deed of trust... exceeds the amount of [the] liability secured by the construction loan deed of trust. Id. This language surely contemplates a direct relationship between the two loans, without an intervening permanent loan separating the two transactions. The statute also requires that such permanent loan deed of trust ... shall contain a reference to the construction loan deed of trust ... and the date and instrument number where it is recorded. Id. The most reasonable construction of the language requiring such a reference also is that the permanent loan deed of trust exemption is available only when a permanent loan directly replaces the construction loan to which the deed refers, and not when the permanent loan replaces an earlier permanent loan which had itself replaced the construction loan. [9] Moreover, as we have noted, exemptions from [the recordation tax] are to be construed strictly against the party claiming an exemption. Nat'l Med. Ass'n, supra, 611 A.2d at 55; see also D.C.Code § 45-927. Any arguable ambiguity in the statutory language must consequently be resolved, if reasonably possible, in favor of the District. We therefore conclude, as did the trial judge, that the taxpayer was not entitled to claim the permanent loan deed of trust exemption. In so holding, however, our analysis is somewhat different from that articulated by the judge in her written opinion. The judge concluded that the exemption is not available, as a matter of law, if no recordation tax was paid when the prior construction loan was recorded, even where, as in this case, no tax was due on that prior recordation. We do not agree with this reading of the statute. In reaching her conclusion, the trial judge relied on the following comment in the legislative history: The legislation also provides that if the debt is refinanced, the tax will apply only to the amount that exceeds the amount of the original deed of trust, unless no tax was paid on the original deed of trust. COUNCIL OF THE DISTRICT OF COLUMBIA, COMMITTEE OF THE WHOLE, REPORT ON BILL NO. 10-575, THE OMNIBUS BUDGET SUPPORT ACT OF 1994, at 16 (Mar. 22, 1994). The Council's comment, however, referred to the refinancing exemption, not to the permanent loan deed of trust exemption. [10] It therefore sheds little light on the availability vel non of the permanent loan deed of trust exemption. We also think it significant that the District's Department of Finance and Revenue, which is the agency responsible for the Act's implementation, has consistently instructed taxpayers that the permanent loan deed of trust exemption is available where a post-1980 permanent loan has replaced a pre-1980 construction loan, even though no recordation tax was due on the earlier transaction. See Instruction E, General Instructions to D.C. Document Recording Form FP 7. [11] We do not believe that the statutory language compels a different result. Reasonably interpreted, the requirement that the tax on the construction loan deed of trust ... has been timely and properly paid, D.C.Code § 45-922(11) was designed to address a situation in which a taxpayer was required to pay a tax but failed to do so. Where, at the time of recordation, the statute itself did not impose any tax liability, there has been no such failure on the part of the taxpayer. The statute does not require that  a tax on the construction loan deed of trust have been paid; if that were the dispositive language, then the trial judge's construction might well have been correct. But the statute, in the subchapter dealing specifically with the Recordation Tax, refers expressly to  the tax on the construction loan deed of trust. Id. (emphasis added). We are unwilling to hold that  the tax was not timely and properly paid in a situation where  the tax due (that is, the recordation tax) was zero. Id. (emphasis added). If the 1995 permanent loan had directly replaced the preceding construction loan, then, as we see the case, the permanent loan deed of trust exemption would have been available to the taxpayer  as it indeed was when 19th Street Associates first refinanced its construction loan in 1981 and only paid a recordation tax of $15,000.00 on the $1,500,000.00 by which the permanent loan exceeded the prior construction loan. [12]