Transfer tax
Encyclopedia
A transfer tax is a tax on the passing of title
to property
from one person (or entity) to another.
In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property. This kind of tax is typically imposed where there is a legal requirement for registration of the transfer, such as transfers of real estate
, share
s, or bond
. Examples of such taxes include some forms of stamp duty
, real estate transfer tax
, and levies for the formal registration of a transfer. In some jurisdictions, transfers of certain forms of property require confirmation by a notary
. While notarial fees may add to the cost of the transaction, they are not a transfer tax in the strict sense of the term.
In the United States
, the term transfer tax also refers to Estate tax and Gift tax
. Both these taxes levy a charge on the transfer of property from a person (or that person's estate) to another without consideration. In 1900, the United States Supreme Court in the case of Knowlton v. Moore, 178 U.S. 41 (1900), confirmed that the estate tax was a tax on the transfer of property as a result of a death and not a tax on the property itself. The taxpayer argued that the estate tax was a direct tax and that, since it had not been apportioned among the states according to population, it was unconstitutional. The Court ruled that the estate tax, as a transfer tax (and not a tax on property by reason of its ownership) was an indirect tax. In the wake of Knowlton the Internal Revenue Code
of the United States
continues to refer to the Estate tax and the related Gift tax as "Transfer taxes."
In this broader sense, estate tax, gift tax, capital gains tax
, sales tax
on goods (not services), and certain use tax
es are all transfer taxes because they involve a tax on the transfer of title.
, then eliminated in 1966.
Title (property)
Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...
to property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
from one person (or entity) to another.
In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property. This kind of tax is typically imposed where there is a legal requirement for registration of the transfer, such as transfers of real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, share
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
s, or bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. Examples of such taxes include some forms of stamp duty
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
, real estate transfer tax
Real estate transfer tax
Real estate transfer tax is a tax that may be imposed by states, counties, or municipalities on the privilege of transferring real property within the jurisdiction. Total transfer taxes range from very small to relatively large . Some U.S...
, and levies for the formal registration of a transfer. In some jurisdictions, transfers of certain forms of property require confirmation by a notary
Notary public
A notary public in the common law world is a public officer constituted by law to serve the public in non-contentious matters usually concerned with estates, deeds, powers-of-attorney, and foreign and international business...
. While notarial fees may add to the cost of the transaction, they are not a transfer tax in the strict sense of the term.
In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the term transfer tax also refers to Estate tax and Gift tax
Gift tax
A gift tax is a tax imposed on the gratuitous transfer of ownership of property. The United States Internal Revenue Service says a gift is "Any transfer to an individual, either directly or indirectly, where full consideration is not received in return."When a taxable gift in the form of cash,...
. Both these taxes levy a charge on the transfer of property from a person (or that person's estate) to another without consideration. In 1900, the United States Supreme Court in the case of Knowlton v. Moore, 178 U.S. 41 (1900), confirmed that the estate tax was a tax on the transfer of property as a result of a death and not a tax on the property itself. The taxpayer argued that the estate tax was a direct tax and that, since it had not been apportioned among the states according to population, it was unconstitutional. The Court ruled that the estate tax, as a transfer tax (and not a tax on property by reason of its ownership) was an indirect tax. In the wake of Knowlton the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
of the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
continues to refer to the Estate tax and the related Gift tax as "Transfer taxes."
In this broader sense, estate tax, gift tax, capital gains tax
Capital gains tax
A capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...
, sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
on goods (not services), and certain use tax
Use tax
A use tax is a type of excise tax levied in the United States. It is assessed upon otherwise "tax free" tangible personal property purchased by a resident of the assessing state for use, storage or consumption of goods in that state , regardless of where the purchase took place...
es are all transfer taxes because they involve a tax on the transfer of title.
Stock transfer
The United States had a tax on sales or transfers of stock from 1914 to 1966. This was instituted in The Revenue Act of 1914 (Act of Oct. 22, 1914 (ch. 331, 38 Stat. 745)), in the amount of 0.2% (20 basis points, bips). This was doubled to 0.4% (40 bips) in 1932, in the context of the Great DepressionGreat Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, then eliminated in 1966.
See also
- Currency transaction taxCurrency transaction taxA currency transaction tax is a tax placed on a specific type of currency transaction for a specific purpose. This term has been most commonly associated with the financial sector, as opposed to consumption taxes paid by consumers....
- Financial transaction taxFinancial transaction taxA financial transaction tax is a tax placed on a specific type of financial transaction for a specific purpose.This term has been most commonly associated with the financial sector, as opposed to consumption taxes paid by consumers. However, it is not a taxing of the financial institutions themselves...
- Inheritance taxInheritance taxAn inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
- Spahn taxSpahn taxA Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.-Early history:...
- Stamp dutyStamp dutyStamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
- Stamp duty in the United KingdomStamp duty in the United KingdomIn the United Kingdom, stamp duty is a form of tax charged on instruments , and requires a physical stamp to be attached to or impressed upon the instrument in question. The more modern versions of the tax no longer require a physical stamp.The scope of stamp duty has been reduced dramatically in...
- Tobin taxTobin taxA Tobin tax, suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another...