What Is the Documentary Transfer Tax?
A documentary transfer tax is a tax collected by a county, city, or municipality every time real property within its jurisdiction exchanges hands or is sold through the public records. Also known as a documentary stamp tax or a real estate transfer tax, the documentary transfer tax is generally a fee based on a percentage of the property's sales price. The amount of the tax varies from state to state.
The National Conference of State Legislators has published a list of all the states that charge some sort of transfer tax upon the resale of real property. Some states charge a tax based on the amount of the mortgage as well. You can see the list of national transfer tax assessments online.
Who Pays the Tax?
Either the seller or the buyer of the property can be liable for the documentary transfer tax; each jurisdiction typically has its own local requirement as to which party actually shells out for it (ask your real estate agent who customarily pays). Even if the seller bears the cost, the tax is considered imposed on the sale for the buyer's benefit, which is why under the Truth in Lending Act and the Real Estate Settlement Procedures Act Integrated Disclosure Rule (TRID) guidelines, you may find the tax on a closing listed as both a credit and a debit. It might also be bundled with other charges, often making it difficult to figure out who is paying which fee.
Sales Price and the Transfer Tax
The documentary transfer tax can be a way to determine what a property sold for, since each publicly recorded deed has the tax "stamped" or embedded on its face (hence, the name "documentary stamp tax" in some states). Generally, this information for computing the property's sales price is deemed reliable, providing that the consideration paid for the property did not involve a loan assumption.
An exception would be an interspousal transfer deed or certain types of a quitclaim deed in which the consideration is $1 or less. No documentary transfer tax is collected on the filing of those particular deeds in the public records. Periodically, wealthy sellers who do not wish the sales price to be public knowledge start movements to eliminate the documentary transfer tax information from the face of grant deeds.
How Documentary Transfer Taxes Work
Say a buyer purchases a home in Sacramento, California, valued at $300,000. California counties charge a tax of 55 cents per $500 of the sales price, sometimes calculated as $1.10 per thousand. Thus, the documentary transfer tax for the state of California would be $330. On top of that, in Sacramento, the parties to a real estate transaction pay an additional city transfer tax of .00275 percent of the sales price, or $825 in this case. That brings the total tax bill up to $1,155. Typically the seller pays for the county transfer tax, and the seller and buyer split the city transfer tax.
Documentary transfer taxes are used to pay for services and amenities that benefit everyone in the county, not just homeowners.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.