Opinion ID: 2716735
Heading Depth: 2
Heading Rank: 3

Heading: the documentary stamp tax act

Text: ¶21 The judgments in the foreclosure cases establish that Chase was the holder of the promissory note and mortgage in each of the four foreclosure proceedings or a person entitled to enforce those instruments. Therefore, it is clear that if the sheriff's deeds in each case had conveyed the property to Chase, Chase would have been entitled to the mortgage foreclosure exemption and no documentary taxes would be due. The tax imposed by Section 3201 of this title shall not apply to: . . . Any deed executed pursuant to a foreclosure proceeding in which the grantee is the holder of a mortgage on the property being foreclosed . . . . 68 O.S.2011 § 3202(13). The Counties do not argue otherwise. Their claim to documentary taxes is based on the fact that the sheriff's deeds were not granted to Chase but to its corporate subsidiary, Homesales, or in the case of the Gentry property to Chase's principal, FNMA. To prove that documentary taxes are due as a result of these conveyances, the Counties must first show that the properties were sold, which requires proof that there was a transfer of an interest for a valuable consideration. 68 O.S.2011 § 3201(C)(1). Second, the Counties must prove that the sales are not exempt. Our disposition of the first issue makes consideration of the second unnecessary. ¶22 Jim Walter Homes, Inc. v. County Clerk of Okfuskee County , 1986 OK CIV APP 35, 734 P.2d 849 (approved for publication by the Supreme Court), cited by the district court, addressed similar issues. 6 The Court of Appeals held that a homebuilder's exchange of a foreclosure judgment for a sheriff's deed at the confirmation hearing constituted consideration, therefore a sale of the property occurred that was not exempt from documentary tax. As authority for its holding regarding the exchange of consideration, the Court cited Railroad Federal Sav. & Loan Ass'n v. United States , 135 F.2d 290 (2d Cir. 1943). That case held that a mortgagor's waiver of the right to pursue a deficiency constituted consideration for a deed in lieu of foreclosure and was subject to documentary tax. The Court of Appeals noted that reliance on federal case law was appropriate because Oklahoma's documentary tax statutes were taken from long-standing federal statutes . . . [and] there are numerous cases which have interpreted 26 U.S.C. § 4361, which contains the exact language of our statute. Jim Walter Homes , 1986 OK CIV APP 35, ¶ 8, 734 P.2d at 851. Although the federal statute at issue in Railroad Federal is identical to section 3201(A), the tax on the transaction was imposed pursuant to a United States Treasury regulation providing that a conveyance by a defaulting mortgagee in consideration for cancellation of the debt is taxed based on the amount of the debt plus accrued interest. As Judge Learned Hand's dissent in Railroad Federal points out, the effect of the regulation was to tax not only the value of any equity paid to the mortgagee but also the remaining amount of the debt without deducting the value of the land for which the mortgagor had originally loaned the purchase price. Railroad Federal , 135 F.2d at 293 (Hand, J. dissenting). Deeds in lieu of foreclosure are now exempt from documentary taxes in Oklahoma. 68 O.S.2011 § 3202(13). ¶23 Closer to the analysis required to resolve this case is Berkeley Sav. & Loan Ass'n of Newark N.J. v. United States , 301 F. Supp. 22 (D.C.N.J.1969), also interpreting the Federal Documentary Stamp Tax Act. In Berkeley , the savings and loan argued that a conveyance from the Veterans Administration (VA) of legal title to property securing repayment of installment contracts it purchased from the VA did not trigger the federal documentary tax imposed on deeds by which real property is sold because the installment contracts required the savings and loan to convey that title to the equitable owner, the installment contract obligor, after payment of a certain amount of the installment contract balance. The Court agreed. [N]ot all deeds, instruments, or writing[s] conveying land or other realty are to have stamps affixed to them; only those deeds, instruments, or writings conveying land or other realty sold need have stamps affixed. Necessary, then, is an examination of the transaction being considered to see if there is a sale of realty; whether or not there is a sale depends, in the court's view, on whether or not the transfer of title was for consideration, and on the intention of the parties and the purpose for which the 'purchasing' party desires the property. Berkeley, 301 F. Supp. at 25. Cf. , United States v. Niagara Hudson Power Corp. , 53 F. Supp. 796, 801 (S.D.N.Y.1944) (transfer of legal title from one wholly owned subsidiary corporation to another wholly owned subsidiary as the result of a merger of the two subsidiary corporations did not require federal documentary stamp taxes). Like the Jim Walter Homes Court, we find these federal cases helpful in determining when a sale occurs for purposes of documentary taxes. ¶24 However, there are two reasons why Jim Walter Homes does not resolve the issues in this case. First, the taxable transaction in Jim Walter Homes was based on the sheriff's deed to the homebuilder. According to the Counties, the potentially taxable transaction in this case is not between the sheriff and deed grantee, Homesales or Gentry, but between the entity entitled to receive a tax exempt sheriff's deed, Chase, and the entity that was granted the deed, its wholly owned subsidiary, Homesales, or in the case of the Gentry property, Chase's principal, FNMA. Second, the Court of Appeals holding that exchange of a foreclosure judgment for the sheriff's deed constitutes consideration for a taxable sale cannot be extended to this case. Although the definition of sold in the version of the DSTA applied in Jim Walter Homes is identical to the definition in section 3201, the Court of Appeals did not address the meaning of the statutory definition of consideration added in 1983 and now part of the current version of the DSTA. Consideration means the actual pecuniary value exchanged or paid or to be exchanged or paid in the future, exclusive of interest, whether in money or otherwise, for the transfer or conveyance of an interest of realty, including any assumed indebtedness. 68 O.S. Supp. 1983 § 5101(C)(3), renumbered from § 5101 by Laws 1988, ch. 162, § 160. ¶25 This Court has not previously determined what constitutes consideration and a sale of real property for purposes of the DSTA. We have, however, interpreted other provisions of the Oklahoma Tax Code involving taxes on transfers of real property. In the case of In re Assessments for the Year 2005 of Certain Real Property , 2007 OK 25, 161 P.3d 303, this Court held that a quit claim deed by trust beneficiaries as co-trustees to a limited liability company of which they were the only members transferred legal title only and, therefore, did not constitute a transfer requiring an assessment of the property at its current value for purposes of ad valorem taxes pursuant to Okla. Const. art. 10 § 8(B): When only legal title is transferred but the equitable ownership is in the same two persons both before and after a deed is executed concerning the property we do not believe the intent of [section 8(B) was to lift] the five percent (5%) fair cash value cap. Id. ¶ 13, 161 P.3d at 311. The Court noted that holding was consistent with previous decisions involving related tax issues, citing Bowls v. Oklahoma City , 1909 OK 149, 104 P. 902 (holder of the equitable title to land pursuant to an executory contract of sale is the owner for the purpose of taxation); State ex rel. Cartwright v. Dunbar , 1980 OK 15, 618 P.2d 900 (ownership of property rather than legal title determines the applicability of the constitutional exemption from ad valorem taxes for property of the state). Accord, In re Assessments for the Year 2003 of Certain Properties , 2006 OK CIV APP 147, 150 P.3d 399 (deed from one limited liability company to another to obtain refinancing did not constitute a transfer triggering ad valorem assessment at current value where both LLC's were owned and controlled by the same third LLC). ¶26 This Court's focus on the substantive nature of the underlying transaction has been followed by the OTC in its administration and enforcement of the DSTA as well. In Documentary Stamp Tax, P-92-222, 1995 WL 557131 (Okla. Tax Comm'n 1995), the OTC found that a quit claim deed granted by a former husband to effectuate the terms of a divorce decree awarding property to his former wife was not a sale as defined in 68 O.S.1991 § 3201(B) because it conveyed no interest beyond the wife's beneficial ownership already established by the divorce decree. A similar result was reached in 1994 interpreting the definition of sold in the 1985 version of the documentary tax statutes. See Documentary Stamp Tax, P 9200060, 1994 WL 848080 (Okla. Tax Comm'n Jan. 6, 1994). In Documentary Stamp Tax, P 8800313, 1989 WL 251450 (Okla. Tax Comm'n Sept. 28, 1989), a partnership owned by family members transferred real property to the individuals at the request of their lender and in order to obtain refinancing. After the refinancing was obtained the members transferred the properties back to the partnership. The OTC concluded no sale occurred because no consideration was exchanged, the intent of the transfers was to effectuate the purpose of the partnership not to conclude a sale, therefore, the partnership did not purchase the properties and no documentary tax was due. The OTC relied on Berkeley Savings & Loan, supra , to reach that result. Finally, by rule, the OTC has determined that conveyances from a constituent corporation to the new or continuing corporation as the result of a merger or consolidation are exempt from documentary taxes. Okla. Admin. Code § 710:30-1-9(7). 7 ¶27 An interest in real property is sold for purposes of the DSTA if the grantee of a deed, instrument, or writing pays actual pecuniary value for the conveyance. 68 O.S.2011 § 3201. If that consideration is paid, documentary taxes are due on the conveyance unless otherwise exempt. In the absence of such consideration, the transfer of legal title alone is not taxable. In determining whether actual pecuniary value is paid in the foreclosure context, we note that a sheriff's sale seldom brings a property's fair market value. The predictable built-in loss is the difference between the fair market value of the property and the foreclosure sale proceeds. Founders Bank & Trust Co. v. Upsher , 1992 OK 35, ¶ 12, n.23, 830 P.2d 1355, 1362. If that difference is $100 or less, there can be no sale for documentary tax purposes. 68 O.S.2011 § 3201(A). As stated by the OTC in its Rule 9, a conveyance of real property without consideration is not subject to documentary taxes. Okla. Admin. Code § 710:30-1-9(1).