Document Transfer Tax

The private firms who handle the sale, escrow and title guaranty portions of the transaction generate most of the closing costs associated with buying real estate.  There are, however, two costs that arise from the role of local government in the process.  One cost is the recording fees which are based on the number of pages needed to complete the transaction, such as deeds, deeds of trust and other related documents.  The other cost is the documentary transfer tax that is collected when properties change hand for consideration.  Transfer tax is collected on sales, exchanges, legal entity changes of control and leases of more than 35 years (including options) among other forms of transfers.  In Northern California the seller of the property customarily pays the transfer tax during the escrow process.

The documentary transfer tax was originally a Federal stamp tax used to raise revenue for the Federal government.  The stamps were first required in December 1914 and were used with brief interruptions until December 31 1967 when the Federal authorizing statute was repealed.  The cost for stamps ranged from $0.50 for each $5,000 of value in 1914 to $0.55 per $500 of transaction value at the time of repeal.  The documentary transfer tax stamps were printed by the Federal Government and looked very much like postage stamps (or the stamps that used to be on cigarette packages).  The County Recorder sold the stamps and then attached them to documents as they were recorded.

When the Federal stamp act was repealed, the California Legislature authorized counties and municipalities to continue the transfer tax.  Almost all counties and municipalities in the state opted to continue the tax.   The tax is now collected at the time of recording, but stamps are no longer used.   The municipality’s share, one-half of $0.55 per $500, is distributed quarterly by the County Auditor for properties located within their boundaries.   The Documentary Transfer Tax raised approximately $2.647 million for Napa County and the five municipalities in calendar year 2019.

Because the documentary transfer tax is based on a simple formula of $0.55 per $500.00 or fraction thereof, it is easy to calculate the purchase price of a property if one knows the amount of transfer taxes collected.  There are three situations where this method does not work.  Sometimes the tax is calculated on the full value of the transaction less liens, i.e. the buyer paid $10,000 down and assumed an existing loan of $90,000 (new loans do count towards full value).  In this case, the transfer tax would be calculated by dividing $10,000 (rather than $100,000) by $500 and then multiplying 20 by $0.55 to arrive at $11.00.   Someone would need to know the amount of the assumed loan(s) to know the full purchase price.  In the second case, the tax will be paid on a single document that transfers several parcels of property.  One would need to know the allocation of the purchase price among those parcels to determine the price of any one parcel.   

Should you have any questions please contact Napa County Assessor-Recorder-County Clerk John Tuteur at 707.253.4459 or by e-mail john.tuteur@countyofnapa.org   More articles can be found at https://www.countyofnapa.org/149/Assessor/