What Are Doc Stamps and How Are They Calculated?
Explore documentary stamps: understand their purpose as a transactional tax, which documents they apply to, and how they are calculated and paid.
Documentary stamps represent a form of tax levied on specific documents that signify the transfer of property or the creation of an obligation to pay money. This tax is an excise tax, meaning it is imposed on the transaction itself rather than on an annual basis or as an income tax.
What are Documentary Stamps
Documentary stamps are a state-imposed tax on certain legal documents, specifically those that transfer an interest in real property or evidence a written obligation to pay money. Often referred to as “doc stamps,” they serve as proof that the required tax has been paid on a recorded or executed document. This tax is distinct from other property-related taxes, focusing on the act of documenting specific transactions.
The primary purpose of documentary stamp taxes is to generate revenue for state governments, which typically support various state services and infrastructure projects.
Transactions Subject to Documentary Stamps
Documentary stamp taxes commonly apply to a range of transactions, particularly those involving real estate and financial obligations. A primary application is on deeds and other instruments that transfer ownership of real property. This includes warranty deeds, quitclaim deeds, and even assignments of leasehold interests or easements. The tax on these transfers is calculated based on the consideration, which can include the purchase price, the discharge of an obligation, or any existing mortgage on the property.
Another significant category subject to these taxes involves written obligations to pay money, such as promissory notes, mortgages, and other liens. The documents evidencing that debt usually incur documentary stamp taxes. The amount of tax for these instruments is based on the principal amount of the debt or obligation.
Calculating Documentary Stamp Taxes
The calculation of documentary stamp taxes depends on the type of document and the transaction amount, with rates varying by state and sometimes by local jurisdiction. For deeds transferring real property, the tax is assessed at a rate per $100, or a fraction thereof, of the total consideration. A common rate is $0.70 per $100 of the purchase price or fair market value. A property sale of $300,000 would incur a deed tax of $2,100 ($300,000 / $100 $0.70).
For obligations to pay money, such as promissory notes and mortgages, the tax is often around $0.35 per $100, or a portion thereof, of the principal amount of the debt. For instance, a promissory note for a $200,000 loan would result in a tax of $700 ($200,000 / $100 $0.35).
Payment and Collection of Documentary Stamps
The responsibility for paying documentary stamp taxes typically falls on specific parties in a transaction, though this can sometimes be negotiated. For deeds transferring real property, the grantor or seller is generally responsible for the payment. Conversely, for promissory notes and mortgages, the borrower or person incurring the debt usually pays the tax. Despite customary practices, all non-exempt parties involved in the document are liable for the tax.
These taxes are collected at the time a document is recorded, often by the county clerk of court or a similar recording official. In real estate transactions, the closing agent, such as a title company or closing attorney, collects these funds as part of the closing costs. The collected amounts are then remitted to the appropriate state revenue authority. Proof of payment was historically evidenced by physical stamps affixed to documents, but it is now more commonly indicated by electronic notation or an official receipt on the recorded document.