Question

Which of the following best describes the documentary stamp tax?

1.A transfer tax based on the price of the property being conveyed.
2.A tax collected by attorneys and paid to the state when transfer documents are prepared.
3.A tax on stamps used to certify the authenticity of a conveyance.
4.A tax a title company must pay in order to examine title records in the recorder's office.

Answer 1

The documentary stamp tax is a transfer tax based on the price of the property being conveyed. It is applied to documents like deeds and mortgages and is historically linked to the Stamp Act of 1765 but with different modern applications.

Step-by-step explanation:

Understanding Documentary Stamp Tax-

The documentary stamp tax is often associated with real estate transactions and can be described as a type of transfer tax. To answer the student's question, the option that best describes the documentary stamp tax is A transfer tax based on the price of the property being conveyed. This tax is applied to documents that transfer interest in real property, such as deeds and mortgage documents. The rate of the tax is typically determined by the cost or value of the property being transferred.

Historically, the concept of a stamp tax can be traced back to the Stamp Act of 1765, which required that revenue stamps be affixed to various paper goods to signify the payment of tax. However, this historical application of stamp taxes is different from the modern documentary stamp tax related to property transfers. It's important to clarify that the documentary stamp tax is not collected by attorneys specifically, and is not a certification of authenticity, nor a fee to examine title records.