After years of wrangling, the Virginia General Assembly finally succeeded in enacting a landmark transportation law (HB 2313) to raise new revenues to pay for transportation initiatives across the commonwealth, with an emphasis on funding capital projects in the Northern Virginia and Hampton Roads areas of Virginia.* The law was ratified by the House and Senate on April 3, 2013.
Although media coverage of the new law has focused on increases in sales, use and fuel taxes, a lesser known provision of the law effects a substantial increase in the tax on real estate transfers in Northern Virginia and Hampton Roads.
Effective on July 1, 2013, transferors of real estate located in Northern Virginia and Hampton Roads will be subject to an increase in the grantor’s tax from 0.10% to 0.25% of the applicable purchase price, exclusive of the value of any encumbrance. The increase is styled as a “Regional Congestion Relief Fee.” The increase does not affect the recordation tax applicable to mortgages.
Although a 150% increase in the grantor’s tax is substantial, Virginia’s taxes on real estate transfers remain substantially lower than similar taxes in neighboring jurisdictions. As an example, the sale of an unencumbered parcel of real property in Northern Virginia for a purchase price of US$20,000,000 would result in total transaction taxes of US$116,667 – a grantor’s tax of US$50,000 and recordation taxes of US$66,667. The same transaction in the District of Columbia would result in combined transfer and recordation taxes of US$580,000, more than five times the Virginia tax.
*For purposes of the statute, Northern Virginia includes the counties of Arlington, Fairfax, Loudoun and Prince William; the cities of Alexandria, Fairfax, Falls Church, Manassas and Manassas Park; the towns of Dumfries, Herndon, Leesburg, Purcellville and Vienna. Hampton Roads includes the counties of Gloucester, Isle of Wight, James City, Southampton, Surry and York; the cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg. The tax increase applies initially only to Northern Virginia and Hampton Roads, but would become applicable to other metropolitan areas that hereafter meet the population criteria set forth in the statute.