The State Department of Assessments and Taxation has recently established a workgroup to study the impacts of imposing the recordation tax on indemnity mortgages and deeds of trust. The workgroup, which is required by Senate Bill 1302 of the 2012 special session, State and Local Revenue and Financing Act of 2012, will examine:
- The expected tax revenues to be collected for local governments;
- The impacts of the tax, if any, on the forms, volume, and value of commercial real estate transactions in urban, suburban, and rural areas of the State and on the overall commercial real estate market in the State; and,
- The impacts of the tax, if any, on residential real estate transactions.
The first meeting will be on Wednesday, July 25, 2012, at 2:00 p.m. in Room L-2 Conference Room, 201 W. Preston St., Baltimore, MD.
MACo has long supported imposing the recordation tax on these business transactions. An indemnity mortgage is recorded to establish a lien on the property. It typically occurs when a business entity creates a LLC to purchase property and the original business entity serves as a third party guarantor. Under current law, the recordation tax does not apply because the total amount of secured debt has not been incurred. MACo would argue that these business relationships are created for the sole purpose of avoiding taxation.
The additional revenue generated from the closure of this loophole has been identified as one of the offsets to assist local governments with covering the costs of the teacher pension shift.